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Seven Sentinels


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#1 IYB

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Posted 26 November 2008 - 09:53 PM

Following are the Seven Sentinels. Time doesn't permit me to post the rules right now, but I will try to do so tomorrow if possible. The rules have "evolved" a bit over time, so that I believe that they give less frequent but more reliable signals than in the early days. Their essence is simplicity. They are not meant to be a "silver bullet" or the "holy grail", nor have I ever claimed them to be. But rather, they are just a tool - just one trader's best effort to define the prevailing direction of market momentum. My central premise of trading is that price follows momentum, so the application for trading should be apparent. At any rate, they work well for me, in conjunction with a number of other tools which tend to keep me grounded with regard to the ever important and evolving "context" of the market.

One final note: the current "buy signal" configuration is one of the best I've seen in a long long time. This may say more, however, about the durability of what I strongly believe to be the IT rally underway, than the ultimate amplitude of that move.

Good trading all, D

http://stockcharts.com/c-sc/sc?s=$TRINQ&p=D&yr=0&mn=6&dy=0&i=p91351991372&a=132242060&r=5671.png

http://stockcharts.com/c-sc/sc?s=$TRIN&p=D&yr=0&mn=6&dy=0&i=p81980886219&a=132242143&r=5289.png

http://stockcharts.com/c-sc/sc?s=$NAMO&p=D&yr=0&mn=6&dy=0&i=p19594754399&a=132241851&r=7973.png

http://stockcharts.com/c-sc/sc?s=$NYMO&p=D&yr=0&mn=6&dy=0&i=p26405502349&a=132240665&r=2149.png

http://stockcharts.com/c-sc/sc?s=$NAHL&p=D&yr=0&mn=6&dy=0&i=p10831498101&a=132242597&r=3475.png

http://stockcharts.com/c-sc/sc?s=$NYHL&p=D&yr=0&mn=6&dy=0&i=p09668266403&a=132243114&r=7420.png

http://stockcharts.com/c-sc/sc?s=$BPCOMPQ&p=D&yr=0&mn=6&dy=0&i=p96303392716&a=132243312&r=5145.png
xxxx

Edited by IYB, 26 November 2008 - 10:01 PM.

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

#2 Frankie

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Posted 27 November 2008 - 12:04 PM

IYB, You the man. Thank you very much for your generous sharing of this data. Happy holiday. Frank

#3 IYB

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Posted 27 November 2008 - 02:33 PM

Thanks, F. Okay, now the rules:

1. When all seven are in buy mode simultaneously following positive divergency patterns (higher reading in the 6 day EMA's of NAMO, NYMO, NAHL, and NYHL--vs. new lows hit in SPX) -- This constitutes a Seven Sentinels Buy Signal. {This occured Weds 11-26, for example. Please notice the massive positive divergence between the October 9 lows and the November 20 lower lows on SPX- where virtually every momentum measure on Earth registered a positive divergence on the "retest"}

2. When all seven are in sell mode simultaneously following negative divergency patterns (lower reading in the 6 day EMA's of NAMO, NYMO, NAHL, and NYHL vs. new highs hit in SPX) -- This constitutes a Seven Sentinels Sell Signal. {This occurred many times in 2008}

3. A signal defines the CONTEXT of the market for my trading purposes, and stays in effect until the opposite signal is given. Occassionally signals only last a few days before being reversed, but more often they last weeks or even months- as the market tends to trend in the direction indicated. While the market is in SSBS mode, I may for example, buy and hold, or trade long positions using weakness to take on positions and strength to exit, or a combination of both, or any other appropriate bullish trading strategies. What I do NOT do during an SSBS period is try to countertrend by shorting strength or any other such counter trend strategy. And while in SSSS mode, I may for example, short and hold, or trade short positions using strength to take on positions and weakness to exit, or a combination of both, or any other appropriate bearish trading strategies. What I do NOT do during an SSSS period is try to countertrend by buying weakness or any other such counter trend strategy.

4. The seven sentinels each have, individually, a buy mode and a sell mode- and as explained above, it is the allignment of all seven under specific conditions that constitutes a signal and defines for me the context or prevailing trend of the market. Here are the individual buy/sell triggers:

TRINQ and TRIN: Daily reading below 13 Day EMA is buy mode, reading above 13 Day EMA is sell mode.

For NAMO, NYMO, NAHL, NYHL, daily reading above 6 Day EMA is buy mode, and reading below same is sell mode.

For BPCOMPQ, reading within the Bolinger Band following reading below constitutes buy mode, as do readings above and outside of BB following reading within the band. Put another way, either positive crossing constitutes buy mode. Reading within the Bolinger Band following reading above constitutes sell mode, as do readings below and outside of BB following reading within the band. Put another way, either negative crossing constitutes sell mode. It stays in buy mode or in sell mode until it recrosses in the opposited direction.

Those are the rules. Strict insistance upon divergent set ups have cut down considerably on the number of signals, and have made the remaining ones, I believe, much more reliable.

Use it if it helps. Ignore it if it doesn't. We all have our own methods. This one works well for me. Good Trading and Happy Thanksgiving, D

Edited by IYB, 27 November 2008 - 02:39 PM.

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

#4 Frankie

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Posted 28 November 2008 - 09:55 AM

D, Thanks again for kindly taking the time for this presentation. Best to you. Frank

#5 IYB

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Posted 30 November 2008 - 01:56 PM

Ken29 asked a question in a later string that I think serves as a great observation and a perfect opportunity for understanding the principles involved in a Seven Sentinels buy or sell signal. So I re-posted it here, in case there are those whose curiousity seeks further explanation. :)

I'm wit ya Bro! We have an official "if you believe in ufo's" buy signal at work. ;) SS's gave first buy signal in many a moon, and I believe the general IT trend will be up for at least 6 weeks, maybe much longer....but still within context of cyclical bear market which will run well into 2009, maybe 2010. Good seein' you here, UFO.


Doesn't the current market looks similar to late Oct?

Great observation, Ken. Yes, it is very similar. We came very, very close to a buy signal then- with one technical exception - the SPX had not traded in new low territory prior to what would have been an SSBS if it had. It closed at a new closing low, though, so it was very close....but no cigar. The violence of the declines this year dictated that we still needed yet one more final retest, with a full blown new SPX low, to clear the decks for the rally which is now underway. The recent setup was technically perfect - with a new low trade and close of SPX creating positive divergences in each of the sentinels, and virtually every other momentum indicator on Earth. This Seven Sentinels Buy Signal is the "poster child" for SSBS's and I have a feeling I'll use it many times in the future as an example of how the Seven Sentinels principles work. Best Regards, D

http://stockcharts.com/c-sc/sc?s=$SPX&p=D&yr=0&mn=6&dy=0&i=p95075859967&a=149689845&r=7806.png


Edited by IYB, 30 November 2008 - 01:58 PM.

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds