NYSI with slow STO

Two weeks ago, Dave shared with us a chart of the $NYSI (click here). He used slow STO 5,3 over the NYSI to see if it would give him reliable signals in the SPX 500. I keep it no secret that I am reluctant if not against using any such indicators over the SI because I believe it is flat out wrong (click here for how I interpret and use this important indicator).

That said, when I saw it first, I was sold on it. There were very few if any whipsaws. This is where my antenna went up but first before I buy something, I have to find any possible way to discredit it. If I can't find anything, then I am a buyer. So I decided to test its signal reliability as much as I know of. I started by improving it a bit as you see below and have been watching it since then.

Few things to make you understand this chart better:

1. The chart's time frame is weekly so it is for swing traders. Important!
2. I changed the SPX to OHLC chart to find out the close as a return measuring point.
3. There are two thin blue lines for STO, one at 80 and another 20. I excluded any rendered signals occurred between these two lines to reduce noise or whipsaws.
4. I put sell signal (red arrow) - buy signal (green arrow) at the CLOSE of SPX when STO gave buy or sell signal. That generated 20 trades. Successful ones are in blue boxes (10), losing trades are in red boxes (8), ans neutral trades are in pink (2).

Based on that chart, we got 50% successful trades out of total 20 trades. Is that good or bad? I will leave this for you to figure out when it comes to reliability of an indicator but I would like you to consider the following:

1. In the bear market, sell signals were more reliable and rewarding than buy signals while in the last rally, buy signals were the ones more reliable than sell signals. Keep in mind that the rally uptrend is not broken yet. We had reliable BUY not sell signals for this period. So it is profitable and rewarding (so far) for one to go with the trend using this STO indicator than against it. If a sell signal started again to provide reliable and profitable trades then that might be a good signal that the trend changed from up to down.

2. While we had only 50% successful trades, I am sure I can see that the losses were small while the gains were large. For more accurate data than just visual, it is better we use actual numbers. I wasn't following this chart during these signals to be sure of when the signal was exactly rendered but you can go and collect the close of each trade of those twenty trades to get the actual return of each one and their average.

3. To improve reliability, I even went and added other indicators to see if I can increase the accuracy of the entry and exit and thus increasing the number of successful trades to improve the ratio to more than 50%

Here is the meat - As of the close of Friday last week, the STO in the chart above gave sell signal. Sell signal means that the previous long swing position should be closed and a short swing position should be opened at the same time.

It was a successful long position based on that signal. Will it be as successful for the short position that was opened SPX500 @ 1136.03? Time will tell and I will keep you posted in "The Hub". I just wanted to share with you my finding and thank Dave along the way.

For updates to this indicator's long and short signals, click here. What do you think? Can you make this chart better?

For more live charts, calls, and links, keep The Hub on your radar. It is fully operational now.

Current SPX 500 @ 1136.03 and DOW @ 10609.65

Keep believing in your dreams! Happy Martin Luther King Day.