Buy Signals

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Everyone is always looking for that solid "buy signal" that will get you profit every time. In real life there is no such thing so the next best thing is one that will let your winners run and cut your losers short and when all is said and done you will make more money than you lose.

I have three such buy signals that have been proven in my back testing. However, these signals do not work with every stock or every chart. Below is the criteria I used in my back testing and also some other suggestions on how to set things up.

I recommend that you have a list of stocks that you are going to trade from. These stocks should primarily have good uptrends although having a few stocks that you know very well and like to trade no matter the trend on the chart is fine. My list is called my alert manager because I set alerts on these stocks to notify me when they are about ready to buy. My list consists of about 200 stocks. The importance of this list is twofold. One is that you know you are attempting to find buy signals on well trending stocks and the other is that you are not trying to find these signals on too many stocks hence coming up with too many stocks to buy.

Another part of the "buy signal" is the "sell signal". Any time you are back testing to try to find the buy signal you have to have a signal that gets you out. This is what keeps your losses to a minimum.

Stay disciplined in your trading. Buy on the buy signal and sell on the sell signal. 

Before I go on with the signals I will tell you that the back testing results that accompany each signal were derived from back testing my alert manager list over a six month period ending April 8, 2011. That being said you have to take into consideration that the overall trend of the market at this time was pretty good.

One last thing for non-members reading this, is that I provide a list of stocks each day on my site that fit these three criteria.

Buy Signal 1

Also known as the Marcelo bounce at Learnstocks101.com

The buy is on a  bounce off of and hold of the 50 day sma. When I back tested I kept it that simple although I know Marcelo uses some other criteria when he looks at these bounces.

The sell is when the RSI crosses below the 50 line and hits the 45 level or on a close below the 50 day sma.

My back test had me with 293 trades in six months with gains of 505% and losses of 399% for an over 100% gain in six months

The chart of Polypore International (PPO) above is one that you have a buy signal on December 2, 2010 at around 35.00 and surprisingly you are still in this trade at 56.77 as the RSI has not touched 45 yet although it has come close.

The second chart here of Apple Inc (AAPL) is a little more conventional. You have three buy/sell signals. The first is a buy around 300 and sell at 326. The second is a buy at 337 and sell 338 and the third is a buy at 342 and a sell at 345. So here you see all is not perfect but it works.

Buy Signal 2

MACD signal line cross.

Buy on a MACD signal line cross with the MACD below zero and the RSI over 50.

Sell on a MACD signal line cross from above to below.

My back test had me with 97 trades in six months with gains totaling 576% and losses of 181%. There are not as many signals here because the MACD does not wander below zero much on well trending stocks.

The chart of Netflix Inc (NFLX) above shows good and bad. The first signal gets you in 187.88 and out at 182.09 but then you recoup that loss on the next signal in at 217.11 that gets you out at 233.96.

Buy Signal 3

RSI  crosses over 50

Buy when RSI crosses from below 50 and closes over.

Exit when the RSI crosses back below 50 and touches 45

This strategy had me with 288 trades and total gains of 1225% and losses of 772%.

The chart of Acme Packet above gives you a buy signal at 39.77 and a sell signal at 52.58.

Instead of summarizing I will leave the questions to you. 

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