Fly Fishing the Stock Market: How to Search for, Catch, and Net the Market's Best Trades

MONTHLY BAIT-‘N’-WAIT

Generating the buy/sell signals off a longer monthly chart decreases trading activity even further (Figure 11.3). Although this minimizes the need to closely monitor the markets as in the case of the lesser time frames, it does so at the expense of reduced profitability, as weekly and daily trade opportunities are sacrificed.

In general, if you are one who likes to look over your shoulder at the market a few times a week, then you should be using the daily chart for your entry and exit signals. If you glance at it a few times a month, use the weekly chart. If you don't care to look or pay attention to it much at all, use the monthly chart.

To establish a new position or add to an existing one, either wait for a new cycle to repeat and generate a buy signal, or wait for prices to pull back to and bounce off the rising 20-bar EMA.

From time to time, when using the longer chart (monthly or weekly), there will be occasions when prices drop below both moving averages even though the exit signal has not been given. Rapid price deterioration such as this may warrant shifting to a chart with a shorter time frame (weekly or daily) for your sell signal. This shift is effectively equivalent to “tightening your stop.”