DOW Advance Decline Analysis

I received some emails requesting for same AD RSI analysis for DOW component stocks.

Using data from Yahoo, I perform the same analysis on DOW. Just to repeat the simple rules here

• Step 1. Obtain the number of gainers, number of losers and number of unchanged stocks that are in the 30 Dow index


• Step 2. Compute the difference between the number of gainers and number of losers


• Step 3. Compute the cumulative sum of the values obtained in Step 2.


• Step 4. Based on the series obtained in Step 3, compute a 13 day RSI. Lets call this AD RSI to differentiate it from normal RSI.
  

Below is the graph of the 13 Day AD RSI from 1999 to 2008.

For this studies, I assume the same rules as FTSE STI analysis

• Whenever the AD RSI drops below 30 wait for AD RSI to rise above 30
• When AD RSI rise above 30, buy 1 lot of DOW Index.
• Once long position is entered, hold the trade for 20 trading days before exiting.
  

Based on this simple trading method, we have the following trades

The probability of win turns out to be 72%.