Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Silver Investment Strategy - Knowing when to Sell

Commodities / Forecasts & Technical Analysis Feb 22, 2007 - 12:10 AM GMT

By: Roland_Watson

Commodities

As we anticipate the next and final leg of phase I of the precious metals bull market, investors need to be ready with their exit strategies if they wish to unload all or part of their assets in a profitable manner.

Not all holders of gold and silver will be of this mind, each has their own reason for holding or not holding any part of their investment. Either way, you need to be sure what you are going to do as silver begins to move in leaps and bounds towards the next major price peak.


To that end, The Silver Analyst has one or two strategies in mind. Though we do not claim to offer foolproof timing, we at least hope to be there or thereabouts before silver takes its next big dive into price correction territory. We have already mentioned our unique long term SLI indicator in previous articles, but today I would like to focus on the venerable 200 day moving average as it applies to silver.

A look at the five-year chart below shows how the silver price has tended to hug the trend line based upon this medium term moving average. A judicious use of the 200-day moving average during corrective periods has given useful buy points for investors and traders as this bull market has progressed.

A look at the five-year chart below shows how the silver price has tended to hug the trend line based upon this medium term moving average

However, the same could not be said of exit points based upon this indicator. The volatility of the silver price has tended to make any attempt to find a relationship between the two prices for exit points rather difficult. One good way to quantify this has been explained by the erudite Adam Hamilton of Zeal Intelligence. He proposed a "relative" moving day average that simply divides the current price of an asset by its 200 day moving average.

Now, though this has proven to have applicability in investments such as gold, silver has proven to be a bit more of a slippery fish due to its price volatility. If we calculate this relative moving average (RMA) over the last 45 years of silver prices, we get the following chart and reproduce the corresponding silver price chart below it for comparison.

Now, though this has proven to have applicability in investments such as gold,

We do get a degree of variability in the spread of sell signal peaks

We do get a degree of variability in the spread of sell signal peaks, but let us attempt to set our sell threshold and back test it against some noticeable silver highs. We have set a threshold of 1.60. In other words, a sell signal is generated if the RMA hits this threshold. This threshold was set based on the optimal number of true and false sell signals that may be generated. If the RMA threshold is set too high, nothing triggers. If it is set too low, too many false exits signals will be generated. The results of back testing this threshold are shown below.

Peak
  Date
Peak
  Price
Exit Date RMA Exit
  Price
Distance
  below peak
 20/05/68  $2.65  NO SIGNAL
 26/02/74  $6.26  07/02/74  1.60  $4.86  22%
 21/01/80  $42.07  14/09/79  1.62  $13.97  67%
 16/02/83  $15.15  28/01/83  1.60  $14.51  4%
 27/04/87  $9.80  24/04/87  1.72  $9.80  0%
 06/02/98  $7.60  NO SIGNAL
 06/04/04  $8.25  NO SIGNAL
 11/05/06  $14.78  17/04/06  1.60  $14.09  5%

 

Explaining the columns, the Peak Date is the particular date on which silver hit a significant closing price high (the Peak Price) . If the RMA hit 1.6 or more to issue a sell signal, the Exit Date gives the date on which this happened. The RMA column gives the value at which this happened or NO SIGNAL if the RMA failed to hit 1.60 at all.

So, if the RMA triggers a sell on the Exit Date , we assume that the investor gets out on the next trading day at the displayed Exit Price . Finally, the Distance Below Peak states how far below the Peak Price we managed to get out at as a percentage. If that percentage was 0% then we got out right at the top! As you can see, the results are mixed. The RMA gave good results for three price peaks. It was way out with the 1980 peak while it failed to trigger at all for three price peaks.

In that light, I wondered if it was possible to improve the signal to noise ratio by smoothing out the volatility in a consistent manner. After experimenting with some price filtering formulae, I came up with a legitimate and proprietary formula that smoothes out the wild swings in the silver RMA. I renamed this the relative moving average refinement or RMAR and the corresponding 45-year chart is shown below.

I renamed this the relative moving average refinement or RMAR and the corresponding 45-year chart is shown below

Compare this to the RMA chart and notice how there is a more even distribution to the spikes. Based on this chart, we reset the sell signal threshold to any value at or above 1.30. We then back tested the price peaks again to get the corresponding result table below.

Peak
  Date
Peak
  Price
Exit Date RMAR Exit
  Price
Distance
  below peak
 20/05/68  $2.65  24/11/67  1.300  $2.17  18%
 26/02/74  $6.26  13/02/74  1.320  $5.31  15%
 21/01/80  $42.07  20/09/79  1.320  $16.18  62%
 16/02/83  $15.15  02/02/83  1.310  $14.45  5%
 27/04/87  $9.80  23/04/87  1.340  $9.72  1%
 06/02/98  $7.60  10/12/97  1.320  $5.92  22%
 06/04/04  $8.25  01/04/04  1.300  $8.12  2%
 11/05/06  $14.78  17/04/06  1.300  $14.09  5%

 

Based on this refined technique we get a definite improvement in the exit results. Firstly, all eight historical price peaks have RMAR sell signals; the RMA only issued five sell signals. However, we notice that catching the famous 1980 peak is still a failure albeit an improved one - 62% from the peak as against 67% for the RMA. It seems that our longer term SLI indicator is better suited to that task!

If we compare the two tables and ask whether the new RMAR beat the equivalent RMA signal, we get the final table below.

Peak Date RMAR Better?
 20/05/68  YES
 26/02/74  YES
 21/01/80  YES
 16/02/83  NO
 27/04/87  NO
 06/02/98  YES
 06/04/04  YES
 11/05/06  EQUAL

 

In five out of eight cases, the RMAR was better at predicting the silver top than the RMA. In two cases, the RMA was better and in one case, it was a dead heat. Now I realize that one could vary the sell thresholds and perhaps get different results, but I suspect they will not be that different. Please email me if you have better suggestions for thresholds.

The RMAR indicator is one of several indicators calculated and tracked in The Silver Analyst newsletter. As we approach new important price highs in silver this or next year, silver investors need to be armed with the best indicators for their exit strategy.

We commend the RMAR indicator as one such quiver to your bow.

By Roland Watson
http://silveranalyst.blogspot.com

Further analysis of the SLI indicator and more can be obtained by going to our silver blog at http://silveranalyst.blogspot.com where readers can obtain the first issue of The Silver Analyst free and learn about subscription details. Comments and questions are also invited via email to silveranalysis@yahoo.co.uk .


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules