PRISM
There is a body of knowledge that uses technical indicators in a graphical way to time the market. Like everything else, nothing is perfect, but some things work pretty well. The PRISM System, described briefly here, and also on Harry Larson's free site. There was also a long discussion about PRISM on the Fasttrack listserve, which I have reformatted and stored.
The PRISM System
This is my own short description of the PRISM system, which was developed by Roy Merwin. This description assumes a working knowledge of Fasttrack. It is named after the keystrokes used in Fasttrack for DOS that put up the five charts:
Price, Relative strength, rsI, Stochastics, and Macd histogram.
Pick your own parameters. I use the following
Price (short moving average = 10, long moving average = 20)
Relative Strength (short period = 30, long period = 60)
RSI (14)
Stochastics (Period = 14, smoothing = 4, trigger = 5)
MACD Histogram (long moving average = 26, short moving average = 12, trigger = 9}
Fasttrack is unusual in that it allows you to put up these 5 charts at once. Pick a fund (or a strategy, as represented by an FNU file), and for the "index" pick a money market fund. This gives the Relative Strength comparison of your fund or strategy with a money market. I will call the fund or strategy "F".
Now examine the charts individually and collectively.
Price: You want the 10 day moving average above the 20 day moving average, and you want F to be above them both.
Relative Strength: You want the 30-day line above the 60-day line, and you want F above both of them
RSI: You want RSI above the middle line.
Stochastics: You want this in the top segment. Or, if you have sold and are looking for a time to get back in, you want it to have moved up from the lower segment, and to be increasing.
MACD: You want the histogram to be in positive territory.
If all of those conditions are met, you are in a strong buy situation. So if you have been out of the market, it is time to buy, and if you are expecting to switch from one fund to another, the new fund should meet those conditions.
But (in the words of a famous rock star), "You can't always get what you want." If the market gets choppy, and appears heading for a correction, you will see one or more of the PRISM conditions fail for F. How many have to fail before you sell out? That is the question. Put up the PRISM screen for a long period of time, and meditate upon it for a while. You will see that you have pretty good sell signals when 3 or more of the conditions fail to be met.
This is a subjective, heuristic method. It does not work all of the time. But then nothing else does either.
How might one use PRISM? These are the ways:
If the market looks bad, look at the PRISM screen, with F set to an FNU file of my current strategy, for a sell signal. If PRISM says to sell, get out.
If one is in cash, and I get a buy signal from some other source, look at the PRISM screen, again with F set to an FNU file of my current strategy, for a buy signal. If PRISM says to buy, go into the market after checking out the individual funds in my strategy. If PRISM does not say to buy, then there is something wrong with the buy signal or the strategy.
Before buying any fund, check the PRISM screen for that fund.
If a fund is not performing well, check the PRISM screen for that fund, and if it says to sell, I sell. This is particularly important if your strategy says to hold a fund for some minimum time period. A lot can happen in 15-30 days (typical time periods for holding to avoid too frequent trading). If a fund goes bad during that time, dump it and stay in cash until the system says to buy something else.
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