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Stock signals: alerts of R.C. Allen's Triple Moving Average Crossover strategy.
You Might Also Find These Items to be of Interest
1. A free list of the highest-momentum stocks in our database is at Momentum List
2. A free list of stocks that just surged in volume is at Volume Surges
3. A free list of stocks making new highs is at New Highs
4. A free market review and daily updates of market indicators are at Market Indicators
We also have other alert systems. For example, you may see a description of the alerts currently included in the StockAlerts subscription, by clicking on Current alert list.
The R.C. Allen 4-9-18 Moving Average Crossover Discipline
Alerts are alerts. They are not "buy" or "sell" signals. An alert means "analyze this." When one of our screens flashes an alert, it means only that certain setup conditions have been satisfied. With regard to R.C. Allen alerts, It means that the 4-day moving average has crossed above both the 9-day moving average and the 18-day moving average and also that the 9-day moving average has crossed above the 18-day moving average. It may also mean that the 4-day moving average has crossed below both the 9-day moving average and the 18-day moving average and also that the 9-day moving average has crossed below the 18-day moving average. That does not mean that all setup conditions are satisfied for a purchase or short sale. For example, there may be overhead resistance that only the human eye can detect. Therefore, inasmuch as an alert means only that a single set of conditions has been satisfied, the logical response to an alert is to make a visual inspection of the stock’s chart. Look for reasons to avoid taking action. For example, if the alert is an "Up Alert," look for reasons to avoid buying. One reason would be overhead resistance not far above the current price. For example, if the "Up Alert" occurs when the price is $45 a share, but the chart shows that the stock has declined on the 5 previous times when it reached $47, then you know there is overhead resistance at $47. The chances are high that it will stop rising at that level, and it may begin to decline there. Therefore, it might be wise to wait and see if the stock can rise above $47 and stay there a few days before buying. If you can find anything that makes you wary or uncomfortable, it would be rational to walk away.
Our algorithm identifies the stocks in a database of approximately 8000 stocks that have generated a signal according to R.C. Allen's 4-, 9-, and 18-day triple moving average crossover system (see "Trading This System" below). The system featured here was made popular by R.C. Allen (How to Build A Fortune in Commodities) as an effective tool for trading both stocks and commodities. However, even R.C. Allen did not consider the signals generated by his system to be "buy" or "sell" signals without regard to their context. He simply argued that the commencement of a trend could be traded correctly by waiting for these averages to align themselves in a particular way. It may help to think of these averages as currents of momentum. When the "momentum currents" build to a certain level, an alert is generated. There is a specific alignment for the commencement of a downtrend and another specific alignment for the commencement of an uptrend. Of course there are considerations that must be considered other than these alignments.
Subscriber lists of R.C. Allen setups are ranked according to the magnitude of the volume surge on the day of the signal. The greater the surge in volume at the time an alert is generated, the more likely it is that the stock will follow through with a continuation of the move. Up to 90 top-ranked R.C. Allen crossover signals are posted for subscribers. Many traders who use the R.C. Allen system pay close attention to the direction of the 4-day moving average. They use the direction of the 4-day moving average as a kind of warning system. If there has been an "Up Alert," those people may decide not to buy if the 4-day moving average is declining. A declining 4-day moving average may be a warning that the last signal may be a "whip-saw." It indicates the beginning of a minor counter-trend to the trend that caused the signal. Such traders will wait for the 4-day moving average to be rising again (while the other moving averages are still aligned correctly) before buying.
This algorithm gives a signal the day it occurs, but it is designed to continue listing a stock for several days after the initial signal. We have included the R.C. Allen alert system with the Stock-Scanner, but the Stock-Scanner has other alert systems as well. That means subscribers to the Stock-Scanner will not get as many R.C. Allen alerts as subscribers to R.C. Allen alerts as a stand-alone subscription because we have to limit the number of alerts displayed. The following is an example of the lists we provide.
The following list is an out-of-date example and should not be considered current. The market had been struggling for over a month and in a steep decline for over a week when the list was generated. The purpose of the example is to show the layout of our reports, not to give a current list. We now use "Up +" and "Dn -" rather than "Up ↗" and "Dn ↘" to indicate the direction of the crossover.
Reports Are Issued Daily
Fri after the close of market
|FRED'S CL A
S&P 500 DIV ARISTOCRAT
BRCLY SHT TRM HGH
GROUP ADR REPSTG 4
FALN ANGL HY BND
FLOWERS.COM CL A
TAX MGD BUY WRITE IN
|ZYNGA CL A
NASDAQ 100 TEC ID
BULTSHR 2019 CRP BD
OUTDOOR HLDG CL A
ADR REP 10
HIGH YIELD BOND
PARTNERS ASSET MGMT CL A
ENHANCED GLO DIV & IN
YIELD CORPORAT BOND
TAX ADV GLBL DVD IN
TAX ADVANTAGE DIVIDN
BRCLY HGH YLD BND
TELESYSTEMS ADR REP 2
AEROPORTUARIO ADR REP 10 B
ULTRA NASDAQ BIOTECH
|FST TRT DSY
WRGHT INTRNL FOCS 5
ULTRA DOW 30
P 500 QUALITY
NASDAQ TECH DIV IDX
ACIONS Y VL ADR REP 20
Notice: If you are a regular visitor, you may remember that we previously provided short lists taken from the bottom of the subscriber list. We no longer do that because stocks at the bottom of the list are often nowhere near as attractive as those higher on the list, and they therefore misrepresented the attractiveness of most of the stocks on the list. People reviewing those stocks might easily come to the conclusion that the rest of the stocks on the list are of similar attractiveness, and therefore think they are less desirable than they really are. Alternatively, we could have taken examples from higher up on the lists, but then there would be little incentive for people to subscribe if they could get free lists of currently attractive stocks.
For a brief summary of the main features and an opportunity to order a subscription, click on the word "Summary" in blue text. Summary
The Alert System Used Here
1.) An "Up Alert" means that the 4-day MA is above the 9-day MA and the 9-day MA is above the 18-day MA. --- If a stock is rising, its shorter moving averages will move up faster than its longer moving averages. Waiting for all moving averages to align correctly gives time for momentum to build, and it helps a potential buyer avoid some false starts. This is one of the ways the strategy incorporates discipline. The alert to a possible "buy" signal occurs when the 4-day moving average crosses above the 9-day moving average. The actual buy signal occurs when the 9-day moving average crosses above the 18-day moving average while the 4-day moving average is still above the 9-day moving average. If at the time the 9-day moving average crosses above the 18-day moving average, the 4-day moving average is below the 9-day moving average, there is no signal unless and until the 4-day moving average crosses back above the 9-day. Conversely, a "Down Alert" means that the 4-day moving average is below the 9-day moving average and the 9-day moving average has just crossed below the 18-day MA.
2.) Furthermore, an "Up Alert" means that the 9-day moving average was below the 18-day moving average on the previous day. --- This implies the stock was recently declining and may be just beginning to rise. Here, the idea is to catch a stock at the beginning of a new trend. A "Down Alert" means that the 9-day moving average was above the 18-day moving average on the previous day. This implies the stock was recently rising and may be just beginning to decline.
3.) R.C. Allen said that "In a bull market, the volume of sales should increase as prices rise. If the volume does not increase, it may be a false move or 'trap.' Even though your charts may show a 'breakout' towards higher levels, the up move should never be trusted unless it occurs with an increase in the volume of the sales." The same thing can be said of down moves. If volume declines on a down move, that move should not to be trusted. On 3/28/11 our system found 110 R.C. Allen alerts. Of those, 106 were "Up Alerts" and 4 were "Down Alerts." On that day the market had declined and most of the alerts had a decrease in volume. According to Allen, such alerts are not to be trusted. When we filtered out the alerts with volume decreases we were left with 44 alerts of which 42 were "Up Alerts." Under the heading "Vol %" we give the 1-day change in volume on the day the alert is registered.
4.) R.C. Allen only required the alignment of moving averages as described in item 1. What if you have an "Up Alert" in which the 4-day moving average is above the 9-day moving average but declining? This could be an indication that the signal may result in a whipsaw (a sell signal shortly after the buy signal). You can screen out such "setups" by using information in the column with the heading "4-Day MA." That column indicates whether the 4-day average is rising or falling. Therefore, in addition to the proper alignment of moving averages, you may use the 4-day moving average to provide added confirmation of the signal by requiring that it also be moving in the direction of the crossover. Stocks are listed as giving an alert based on a strict compliance with Allen's system. Under Allen's rules, it is theoretically possible (though not common) for the 9-day moving average to be declining but still cross above the 18-day moving average. Also, the 9-day average could be rising when it crosses the 18-day average while the 18-day average is still declining (probably slowly). It will be up to you to inspect the charts and decide if those configurations are worthy of consideration on a case by case basis. R.C. Allen did not give rules for such situations, so our algorithm does not make those judgements for you either.
R.C. Allen's system has been used successfully by thousands of traders over many years. If you cannot make it work for you, it is likely because you have not learned to implement it correctly. Richard Dennis, one of the world's most accomplished traders, once trained a group of very intelligent people to be traders. He gave them all the same rules and trading system. A few made millions but some were failures. It all came down to implementation. Those who followed the rules did well. Those who second-guessed their system did poorly. Emotions will be your worst enemy when it comes to trading. Losses are a part of every discipline. If you think you have a good discipline but you lose money on 15 consecutive trades, an emotional trader might be more inclined to abandon his discipline or even abandon trading altogether. Successful traders do not. They may re-evaluate their system and the way they implement it, but if it is a good system that others have used successfully, they will not toss it away.
In our own studies, we programmed a computer to trade various strategies. One of the very best strategies generated many more losses than gains. The losses were all very small but many of the gains were large. Yet, the system was quite profitable. Most humans would not have been able to implement the strategy successfully because all the losses would have caused them to abandon it. However a computer does not get depressed when it has a losing trade. It keeps implementing a strategy no matter what happens. The key for a beginner is to strictly limit the amount that can be lost on each trade. If you are a beginner, use only a very small portion of your assets for trading and diversify the small portion that you trade.
Some people consider these alignments, when complete, to be buy and sell signals rather than "alerts." They act on them without question, and consider any false moves as merely the cost of doing business. Others prefer to think of them as "alerts." For them, a buy or sell may be called for immediately, but sometimes they prefer a subsequent "trigger event." A "trigger event" might be another price move in the crossover direction. However, after an alert is generated, it may take up to a week or more for a "trigger event" (buy or sell signal) to develop. If your strategy is to wait for a subsequent trigger event and two weeks go by without one, we would suggest that it is time to "walk away" from that situation. When our own traders are waiting for a trigger event, they consider the setup to have failed if the trigger event does not materialize within two weeks.
One System Among Several Systems
The "character" of market behavior is in a state of flux. There will be times when none of the "setup" alerts reported by a particular alert system are attractive. In fact, an individual alert system can perform poorly for months at a time. That's why we personally use a variety of alert systems. When one system isn't working, another may be generating alerts after which the stocks follow through with spectacular surges in price. Our hope is that you will eventually come to see the advantage of having an arsenal of "idea-generators" that can keep you well supplied with good ideas most of the time. The R.C. Allen 4x9x18 crossover system featured here complements the other systems included in our StockAlerts subscription. For example, when it's working well, R.C. Allen's system can give earlier entries and exits than the 5x10x20 system. At other times, the somewhat slower approach of the 5x10x20 system may yield better results. We think the best results can be obtained by using a variety of alert systems as part of a disciplined approach to finding stocks for your watch list. When one system is not working well, there is often another that is. Monitoring a variety of systems and the way their setups evolve is how a person can discover which system to place the most emphasis on at a given time.
Want to know about the timeliness of these alerts? Click on New or Old?
We have added hundreds of ETFs to our master stock list so that subscribers will have a greater variety of opportunities for investment. Most but not necessarily all ETFs on our master list have the letters ETF after their names to differentiate them from stocks of individual companies. On this website, "ETF" is used as a broad generic label. Therefore, Vipers may also have the letters "ETF" added to their names. The inclusion of ETFs increases the odds that at any given time there will be purchase candidates, whether a person is bullish or bearish. If your investment approach does not include ETFs, simply ignore any stock with the letters ETF after its name.
The above chart is of Wall Mart Stores (symnbol WMT). During this period, the stock generally moved sideways. The closing price at the beginning of the chart was 73.76 (11/6/2012) and the last closing price was 77.07 (11/1/2013). That would not represent much of a gain for a 1-year holding period.
With the data we provide, you can design variations of RC Allen's system. For example, in using the RC Allen system, if a person requires all moving averages to be moving in the direction that confirms the signal, the crossovers at #1 and #5 would be ignored because the red line (18-day moving average) is still declining at the time of the signal. You may not consider the crossover day to be a time to be buying, but you might wait until the 18-day moving average started to move up. Now here is another nuance that makes a difference in the buy/sell decision. You might want to use the 4-day moving average (light green in the chart) as a confirmation indicator to cut down on whipsaws. For example, if a buy signal is generated and the 4-day average is declining, you may not want to buy until the 4-day moving average is rising along with the other two moving averages. The declining 4-day moving average may be the first sign of a counter-move that will ultimately result in another sell signal. For example, the sell signal #2 (down arrow) just before #3 took place took place when the green 4-day average line moved higher, not lower. If you were trading this stock, you might not sell on this signal because a new buy signal might be in the making. Here, you would have been correct to ignore the sell signal. However, the sell signal at "4" could be acted on because all moving averages are declining. As you can see, the buy signal at #6 would have resulted in a small loss. There are many ways in which you can customize Allen's system, or you can simply use it as Allen used it.
A Reason Not to Buy
The lists you will find here are not personal buy or sell recommendations. They are merely reports of stock activity and technical signals generated by a discipline. However, this system is well-known and widely followed. Proper alignment is not in itself a sufficient reason to buy or sell a stock. Look at the chart below, for example.
The moving averages plotted are not R.C. Allen's lmoving averages, but Donchian's 5X20 dual moving average crossover system. The point applies to all systems, however. The moving averages aligned properly in the last few days charted (see inside the boxed area). Notice the large price price surge that caused the signal. As you can see, there is strong overhead resistance at the horizontal purple line. A stock can have the correct alignment of moving averages for a purchase but the pattern itself may still not be "ready' or it may even be lousy (or dangerous).
While Allen's discipline is a popular trading system in its own right, the trading members of our company prefer to use it as only one of their screening tools. That is, its output notifies us of the recent emergence of certain technical conditions that make a stock interesting and a candidate for a closer look.
We conduct further evaluation and analysis to determine if a stock should be bought or included on our short "Watch List." We would suggest that you use the same approach.
In general, we watch for a setup, the absence of significant overhead resistance, and a "trigger event."
With regard to this particular screen, a proper setup may exist if a stock is listed on this page and if there is no reason to be apprehensive about the chart pattern. If there is overhead resistance immediately above the current price, there is reason to be apprehensive [See the horizontal purple line and all the arrows in the above chart. That line is overhead resistance and a reason not to buy] If there is no resistance there, a good trigger event might be a follow-through price surge on increasing volume. If the resistance is there, we might still consider it to be a "setup" but modify the trigger event. For example, we might consider an acceptable trigger event to be a follow-through price surge on increasing volume that takes the stock through that resistance. Some experienced traders may even wait for a subsequent test of support at the previous level of resistance and then a resumption of the up-trend.
Instead of using Allen's system to define the setup, some use it to define the trigger event. For example, the trader might look for good setups (a Bollinger squeeze with penetration of upper band, for example). These setups would have a context that is attractive. Then, they would wait for R.C. Allen's discipline to give the final go-ahead.
(Note: A discussion of the meaning of "support" and "resistance" can be found by clicking on "Free Tutorials" on the navigation bar and scrolling down to the section titled "Charts." Read all of that section if you are unfamiliar with these terms.)
See a list of the stocks we scan for our reports.
Notice Because we are no longer registered investment advisors, we do not make personal investment recommendations. We do NOT recommend that any individual use this trading system for his or her own account. We also do not recommend AGAINST using this system. That is a matter to be decided on by you personally (perhaps with the help of a licensed professional securities consultant). If you use the system and the postings made here, you do so at your own risk.
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