POINTS TO PONDER CONT..

Avoiding Those Costly Impulsive Trades  By combining two proven momentum indicators, Starc bands and the Relative Strength Index (RSI), traders can gain invaluable confirmation that can help prevent those dreaded, impulsive losing trades.  Over the years, I have met and interviewed many traders and investors about the markets and their own unique approaches to trading them. I often have tried to find out what their worst trade was over the past six months or year prior. The majority of them, in hindsight, have identified a poor entry price as the main culprit. The second-most-common factor was greed, in that they had a winning position, but stuck with it for too long and in some cases, they ended up with no profit at all. In my regular Charts in Play feature, favorite tools that I always use and frequently mention are Starc bands, as developed by the late Manning Stoller. As I've often emphasized, Starc bands have kept me in or gotten me out of many trades and have helped me to determine safe profit-taking levels. When I look at a stock or ETF on which I want to take a position, the relationship of the price to the weekly and daily Starc bands plays a key role in deciding whether or not to take that position. No matter how bullish or bearish a market looks, if prices are near one of the Starc bands-be it the Starc+ or Starc- band-I will look for a better entry where the risk can be better controlled. By doing this, I will sometimes miss the trade altogether, but avoiding high-risk or impulsive trades can really make a difference in your bottom line. If you are an active trader, I am sure you have overtraded at some time in your career, and not taking a trade is sometimes the best strategy. Another tool I have used for many years is the Relative Strength Index (RSI), which was developed by Welles Wilder. Walter Bressert, an old friend and leading cycle analyst, also showed me that the RSI can be modified into a very effective momentum tool. Most successful traders will agree that having momentum, or "Mo," on your side can be the difference between success and failure. Walt used a three-period simple moving average of a five-period RSI to help identify cycle highs and lows. I call this indicator the RSI3-Momentum, or sometimes just Momentum. I have found that combining the RSI3 with the Starc bands can be very effective in identifying price extremes. As with all of the methods I use and discuss, multiple time periods must be analyzed. As discussed previously, prices rarely move either above the Starc+ band or below the Starc- band. Occasionally, prices will stay outside of the Starc bands for several bars. This is where the RSI3 can be very helpful. First of all, the rules for using the RSI are not meant to be a trading system, as most traders are aware that momentum-based indicators are very unreliable in strongly trending markets. This interpretation of the RSI3 is just another tool that can be quite useful in determining entry or exit levels in conjunction with signals from other analytical tools. The guidelines are fairly simple: When the RSI3 moves above the 85 level and prices are near the Starc+ band, I look for the RSI to drop back below the 85 level to indicate that a price high is likely in place. Conversely, if prices are near the Starc- band, then I look for the RSI3 to drop below 25 and then move back above it to indicate a price low may be in place.