Teaching Moment

This past market week I mentioned the utilization of three specific criteria that I use to make investment decisions.  These criteria were used to in analyzing UUP (Bullish Dollar Index).  They are as follows:

1. 3-day EMA > 10 day EMA
2. Percentage Price Oscillator (PPO) > 0 (positive) [Further from the "0" line the stronger and more significant the signal is.]
3. Williams %R > -.80.  

Specially, I use a daily chart to see if each criterion is in "sync (aligned)" with each other.  If each criterion is in sync, then I will consider making an investment.  See the following UUP chart:

As you can see, the criteria were met on August 9!  Do I immediate take a position when the criteria is met?  The answer is NO.  Why?  Because, before I take a position; I look at the "hourly" chart to see if it is currently overbought or oversold.  See the following hourly chart on UUP.  You will notice that on August 9, PPO just turned positive and the Williams %R was at least better than -.8.  Given those two conditions along with the hourly price on UUP was near the lower Bollinger Band, I did take a position.

Now, I want to add to my UUP position, but I will wait.  Why?  Look again at the hourly UUP chart.  Notice that the PPO has turned negative and the hourly readings for the Williams % R are in the overbought territory, which indicates to me that we should see some price softness near term.  I want to see UUP head into the oversold territory for PPO and Williams %R, which should correspond to the lower Bollinger Band.  If that occurs and the daily criteria are still in sync, I will add to my UUP position.

How long will I stay in my UUP position?  As long as the three criteria on the daily chart stay bullish.  If the 3-day EMA < 10-day EMA, PPO < 0, and the Williams %R turns down from above -.2, I will turn to the "hourly UUP chart" for the signal to sell.

Hopefully, this mini-lesson will assist you in your investment trading.