Trend pullbacks with a fifty-day average and relative strength index

Three horizons at once

Three trend horizons are treated as simultaneous: a long-term backdrop lasting months or years, an intermediate swing lasting weeks or months, and short-term corrections of that intermediate swing.

A moving average is a smoothed price line whose length is matched to a chosen horizon and then used as both a trend filter and a pullback or exit reference. A 40-week average on a weekly chart is presented as the same long-horizon line as a 200-day average on a daily chart, using five trading days times 40 weeks, and that line is used to judge the broader bullish or bearish backdrop.

The 50-day average is the intermediate-trend line. In a strong advance, prices generally stay above it and often tag it on the first pullback after a breakout, with two or more closes still above it treated as a strength reading.

Short retreats to the working average

Trend-following stays with the prevailing direction, takes pullbacks inside that direction, and treats a close through the working average as the end of the holding period. Once a trend is established, three-to-five-day declines that touch the working average are described as common, and five-to-ten-day declines as less common. Lighter down-volume than the prior advance is treated as a healthier pullback.

Starting far above the 50-day average is treated as riskier than waiting for a later tag of that average, because price is described as eventually returning to its averages and a distant breakout can sit above a later pullback.

Two relative strength index lookbacks

A relative strength index is an oscillator on ordered prices that can time oversold reversals on a shorter lookback and mark trend regime at the 50 line on a longer lookback.

A 14-day relative strength index is used to time the end of those short retreats. Overbought readings during an uptrend are treated as unreliable, while reversal work is focused on readings below 30.

A 21-day relative strength index is read at the RSI fifty line rather than as an overbought or oversold oscillator. Above 50 is bullish, below 50 is bearish, and a cross of 50 is the buy or sell flip that, with the 50-day average, defines the combination signals.

The entry stack

The stated entry stack is an uptrend pullback to the 50-day average, a 14-day relative strength index that is oversold and turning, a 21-day reading still above 50, and a confirming upward price reversal. An initial stop is placed 0.25 below the reversal low, and the exit is the first close below that same 50-day average.

Monthly and weekly uptrends are required before a daily setup near the 50-day average is used. When those frames do not align, standing aside is treated as a valid output of the trend-following procedure.

The same average for the exit

The exit stays on the same average used for entry, so a 20-day entry is not held down to the 50-day line. Price must confirm with a three-bar reversal, a pattern whose middle bar is flanked by higher lows, with action delayed until the next session exceeds that middle-bar high.

A 10 percent open gain then hands the stop to the 50-day average. A close below that average still ends the hold even if a bounce is expected. A later close back above the average plus a relative-strength turn is allowed to restart the same rules.