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#1
Open OverWise board / Ed Seykota’s 21 Investment Gui...
Last post by Henrik Ekenberg - Sep 12, 2024, 06:42 AMEd Seykota's 21 Investment Guidelines
1. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading.
2. If I am bullish, I neither buy on a reaction, nor wait for strength; I am already in. I turn bullish at the instant my buy stop is hit, and stay bullish until my sell stop is hit. Being bullish and not being long is illogical.
3. If I were buying, my point would be above the market. I try to identify a point at which I expect the market momentum to be strong in the direction of the trade, so as to reduce my probable risk.
4. I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues. Sometimes, I take profits when a market gets wild. This usually doesn't get me out any better than waiting for my stops to close in, but it does cut down on the volatility of the portfolio, which helps calm my nerves. Losing a position is aggravating, whereas losing your nerve is devastating.
5. Before I enter a trade, I set stops at a point at which the chart sours.
6. The markets are the same now as they were five to ten years ago because they keep changing – just like they did then.
7. Risk is the uncertain possibility of loss. If you could quantify risk exactly, it would no longer be risk.
8. Speculate with less than 10% of your liquid net worth. Risk less than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth.
9. I usually ignore advice from other traders, especially the ones who believe they are on to a "sure thing." The old-timers, who talk about "maybe there is a chance of so and so," are often right and early.
10. Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.
11. Trend systems do not intend to pick tops or bottoms. They ride sides.
12. The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system. There are old traders and there are bold traders, but there are very few old, bold traders.
13. The manager has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change. These decisions are quite important—often more important than trade timing.
14. The profitability of trading systems seems to move in cycles. Periods during which trend-following systems are highly successful will lead to their increased popularity. As the number of system users increases, and the markets shift from trending to directionless price action, these systems become unprofitable, and under-capitalized, and inexperienced traders will get shaken out. Longevity is the key to success.
15. Systems don't need to be changed. The trick is for a trader to develop a system with which he is compatible.
16. I don't think traders can follow rules for very long unless they reflect their own trading style. Eventually, a breaking point is reached and the trader has to quit or change, or find a new set of rules he can follow. This seems to be part of the process of evolution and growth of a trader.
17. Trading systems don't eliminate whipsaws. They just include them as part of the process.
18. The trading rules I live by are:
21. One alternative is to keep bets small and then to systematically keep reducing risk during equity drawdowns. That way you have a gentle financial and emotional touchdown.
1. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading.
2. If I am bullish, I neither buy on a reaction, nor wait for strength; I am already in. I turn bullish at the instant my buy stop is hit, and stay bullish until my sell stop is hit. Being bullish and not being long is illogical.
3. If I were buying, my point would be above the market. I try to identify a point at which I expect the market momentum to be strong in the direction of the trade, so as to reduce my probable risk.
4. I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues. Sometimes, I take profits when a market gets wild. This usually doesn't get me out any better than waiting for my stops to close in, but it does cut down on the volatility of the portfolio, which helps calm my nerves. Losing a position is aggravating, whereas losing your nerve is devastating.
5. Before I enter a trade, I set stops at a point at which the chart sours.
6. The markets are the same now as they were five to ten years ago because they keep changing – just like they did then.
7. Risk is the uncertain possibility of loss. If you could quantify risk exactly, it would no longer be risk.
8. Speculate with less than 10% of your liquid net worth. Risk less than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth.
9. I usually ignore advice from other traders, especially the ones who believe they are on to a "sure thing." The old-timers, who talk about "maybe there is a chance of so and so," are often right and early.
10. Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.
11. Trend systems do not intend to pick tops or bottoms. They ride sides.
12. The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system. There are old traders and there are bold traders, but there are very few old, bold traders.
13. The manager has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change. These decisions are quite important—often more important than trade timing.
14. The profitability of trading systems seems to move in cycles. Periods during which trend-following systems are highly successful will lead to their increased popularity. As the number of system users increases, and the markets shift from trending to directionless price action, these systems become unprofitable, and under-capitalized, and inexperienced traders will get shaken out. Longevity is the key to success.
15. Systems don't need to be changed. The trick is for a trader to develop a system with which he is compatible.
16. I don't think traders can follow rules for very long unless they reflect their own trading style. Eventually, a breaking point is reached and the trader has to quit or change, or find a new set of rules he can follow. This seems to be part of the process of evolution and growth of a trader.
17. Trading systems don't eliminate whipsaws. They just include them as part of the process.
18. The trading rules I live by are:
- Cut losses.
- Ride winners.
- Keep bets small.
- Follow the rules without question.
- Know when to break the rules.
- Cutting losses.
- Cutting losses.
- Cutting losses.
If you can follow these three rules, you may have a chance.
21. One alternative is to keep bets small and then to systematically keep reducing risk during equity drawdowns. That way you have a gentle financial and emotional touchdown.
#2
Open OverWise board / Re: BERNARD BARUCH'S TRADING W...
Last post by Swe_expat - Aug 30, 2024, 10:18 PMI'm currently reading a biography of him 8 
#3
Open OverWise board / BERNARD BARUCH'S TRADING WEAPO...
Last post by Henrik Ekenberg - Aug 28, 2024, 11:19 AMBERNARD BARUCH'S TRADING WEAPONS
- Don't speculate unless you can make it a full-time job.
- Beware of barbers, beauticians, waiters—of anyone—bringing gifts of "inside" information or "tips."
- Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.
- Don't try to buy at the bottom and sell at the top. This can't be done—except by liars.
- Learn how to take your losses quickly and cleanly. Don't expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.
- Don't buy too many different securities. Better have only a few investments which can be watched.
- Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
- Study your tax position to know when you can sell to greatest advantage.
- Always keep a good part of your capital in a cash reserve. Never invest all your funds.
- Don't try to be a jack of all investments. Stick to the field you know best.
#4
Open OverWise board / Peter Lynch's 25 Golden Rules ...
Last post by Henrik Ekenberg - Aug 27, 2024, 08:44 PMPeter Lynch's 25 Golden Rules for Investing
1. Investing is fun and exciting, but dangerous if you don't do any work.
2. Your investor's edge is not something you get from Wall Street experts. It's something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.
3. The stock market has come to be dominated by a herd of professional investors over the past 3 decades. Contrary to popular belief, this makes it easier for the amateur investor. You can beat the market by ignoring the herd.
4. Behind every stock is a company. Find out what it's doing.
5. There is often no correlation between the success of a company's operations and the success of its stock over a few months or even a few years. In the long term, there is a 100% correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies.
6. You have to know what you own, and why you own it. "This baby is a cinch to go up" doesn't count.
7. Long shots almost always miss the mark.
8. Owning stocks is like having children — don't get involved with more than you can handle. The part-time stock picker probably has time to follow 8-12 companies, and to buy and sell shares as conditions warrant. There don't have to be more than 5 companies in the portfolio at any one time.
9. If you can't find any companies that you think are attractive, put your money in the bank until you discover some.
10. Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent before you risk your money on it.
11. Avoid hot stocks in hot industries. Great companies in cold, no-growth industries are consistent big winners.
12. With small companies, you are better off to wait until they turn a profit before you invest.
13. If you are thinking of investing in a troubled industry, buy the companies with staying power. Also, wait for the industry to show signs of revival. Buggies whips and radio tubes were once growth industries that never came back.
14. If you invest $1,000 in a stock, all you can lose is $1,000, but you can make $10,000 or even $50,000 over time if you are patient. The average person can concentrate on a few good companies, while the fund manager is forced to diversify. By owning too many stocks, the fund manager ensures mediocre results.
15. In every industry and every region of the country, the observant amateur can find great growth companies long before the professionals have discovered them.
16. A stock market decline is as routine as a January blizzard in Colorado. If you are prepared, it can't hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.
17. Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds altogether.
18. There is always something to worry about. Avoid weekend thinking and ignore the latest dire predictions of the newscasters. Sell a stock because the company's fundamentals deteriorate, not because the sky is falling.
19. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you have invested.
20. If you study 10 companies, you will find 1 for which the story is better than expected. If you study 50, you'll find 5. There are always pleasant surprises to be found in the stock market — companies whose achievements are being overlooked on Wall Street.
21. If you don't study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
22. Time is on your side when you own shares of superior companies. You can afford to be patient — even if you missed Wal-Mart in the first five years, it was a great stock to own in the next five years. Time is against you when you own options.
23. If you have the stomach for stocks, but neither the time nor the inclination to do the homework, invest in equity mutual funds. Here, it's a good idea to diversify. You should own a few different kinds of funds, with managers who pursue different styles of investing: growth, value, small companies, large companies, etc. Investing the size of the stock fund is not diversification.
24. Among the major stock markets of the world, the U.S. market ranks 8th in total return over the past decade. You can take advantage of the faster-growing economies by investing some portion of your assets in an overseas fund with a good record.
25. In the long run, a portfolio of well-chosen stocks and/or equity mutual funds will always outperform a portfolio of bonds or a money-market account. In the long run, a portfolio of poorly chosen stocks won't outperform the money left under the mattress.
1. Investing is fun and exciting, but dangerous if you don't do any work.
2. Your investor's edge is not something you get from Wall Street experts. It's something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.
3. The stock market has come to be dominated by a herd of professional investors over the past 3 decades. Contrary to popular belief, this makes it easier for the amateur investor. You can beat the market by ignoring the herd.
4. Behind every stock is a company. Find out what it's doing.
5. There is often no correlation between the success of a company's operations and the success of its stock over a few months or even a few years. In the long term, there is a 100% correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies.
6. You have to know what you own, and why you own it. "This baby is a cinch to go up" doesn't count.
7. Long shots almost always miss the mark.
8. Owning stocks is like having children — don't get involved with more than you can handle. The part-time stock picker probably has time to follow 8-12 companies, and to buy and sell shares as conditions warrant. There don't have to be more than 5 companies in the portfolio at any one time.
9. If you can't find any companies that you think are attractive, put your money in the bank until you discover some.
10. Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent before you risk your money on it.
11. Avoid hot stocks in hot industries. Great companies in cold, no-growth industries are consistent big winners.
12. With small companies, you are better off to wait until they turn a profit before you invest.
13. If you are thinking of investing in a troubled industry, buy the companies with staying power. Also, wait for the industry to show signs of revival. Buggies whips and radio tubes were once growth industries that never came back.
14. If you invest $1,000 in a stock, all you can lose is $1,000, but you can make $10,000 or even $50,000 over time if you are patient. The average person can concentrate on a few good companies, while the fund manager is forced to diversify. By owning too many stocks, the fund manager ensures mediocre results.
15. In every industry and every region of the country, the observant amateur can find great growth companies long before the professionals have discovered them.
16. A stock market decline is as routine as a January blizzard in Colorado. If you are prepared, it can't hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.
17. Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds altogether.
18. There is always something to worry about. Avoid weekend thinking and ignore the latest dire predictions of the newscasters. Sell a stock because the company's fundamentals deteriorate, not because the sky is falling.
19. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you have invested.
20. If you study 10 companies, you will find 1 for which the story is better than expected. If you study 50, you'll find 5. There are always pleasant surprises to be found in the stock market — companies whose achievements are being overlooked on Wall Street.
21. If you don't study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
22. Time is on your side when you own shares of superior companies. You can afford to be patient — even if you missed Wal-Mart in the first five years, it was a great stock to own in the next five years. Time is against you when you own options.
23. If you have the stomach for stocks, but neither the time nor the inclination to do the homework, invest in equity mutual funds. Here, it's a good idea to diversify. You should own a few different kinds of funds, with managers who pursue different styles of investing: growth, value, small companies, large companies, etc. Investing the size of the stock fund is not diversification.
24. Among the major stock markets of the world, the U.S. market ranks 8th in total return over the past decade. You can take advantage of the faster-growing economies by investing some portion of your assets in an overseas fund with a good record.
25. In the long run, a portfolio of well-chosen stocks and/or equity mutual funds will always outperform a portfolio of bonds or a money-market account. In the long run, a portfolio of poorly chosen stocks won't outperform the money left under the mattress.
#5
Open OverWise board / Re: Dan Zanger’s 10 Golden Tra...
Last post by Henrik Ekenberg - Aug 27, 2024, 12:06 PM10 Golden Rules of J. Dan Zanger - $42 Million in Just Two Years
1. Ensure the Stock Has a Well-Formed Base or Pattern: Before considering a purchase, make sure the stock exhibits a well-formed base or pattern, such as those described on this website under the "Understanding Chart Patterns" tab on the home page. Dan highlights stocks with these patterns in his newsletter.
2. Buy on Breakout Over the Trend Line with Volume: Purchase the stock as it moves over the trend line of that base or pattern. Ensure that volume is above the recent trend shortly after this breakout occurs. Never pay more than 5% above the trend line. Additionally, familiarize yourself with your stock's thirty-day moving average volume, which you can find on most stock quote pages.
3. Quickly Sell if the Stock Falls Below the Trend Line: Be quick to sell your stock if it falls back under the trend line or breakout point. Generally, stops should be set at about $3 to $5 below the buy point. For more expensive stocks, a little more leeway is acceptable, but never more than a 2% stop loss. Some traders use a 5% stop loss rule. This may mean selling a stock that just attempted a breakout and failed, whether it's within 20 minutes or 3 hours of your purchase.
4. Take Partial Profits on Gains: Sell 20% to 30% of your position when the stock moves up 15% to 20% from its breakout point.
5. Hold Strong Stocks and Quickly Sell Weak Ones: Hold your strongest stocks the longest and sell stocks that stop moving up or are acting sluggish quickly. Remember, stocks are only good when they are moving up.
6. Focus on Strong Groups of Stocks: Identify and follow strong groups of stocks, and try to keep your selections within these groups.
7. Be Aware of Market Sell-Offs: After the market has moved up for a substantial period, your stocks may become vulnerable to a sell-off, which can happen suddenly and dramatically. Learn to set new higher trend lines and understand reversal patterns to help with exiting stocks. Books on Candlesticks or the "Encyclopedia of Chart Patterns" by Bulkowski are recommended reading.
8. Volume is Key to Stock Movement: Volume drives stock movement. Start understanding your stock's volume behavior and how it reacts to volume spikes. These spikes are visible on any chart and are crucial for your stock's movement and success or failure.
9. Evaluate Before Buying on Mentioned Buy Points: Many stocks are mentioned in newsletters with buy points. However, just because a buy point is mentioned doesn't mean it's an automatic buy when that point is hit. Assess the stock's action and volume on the day when the buy point is hit, and take notice of the overall market environment before purchasing.
10. Avoid Using Margin Until Mastery is Achieved: Never go on margin until you have mastered the market, charts, and your emotions. Margin can wipe you out.
1. Ensure the Stock Has a Well-Formed Base or Pattern: Before considering a purchase, make sure the stock exhibits a well-formed base or pattern, such as those described on this website under the "Understanding Chart Patterns" tab on the home page. Dan highlights stocks with these patterns in his newsletter.
2. Buy on Breakout Over the Trend Line with Volume: Purchase the stock as it moves over the trend line of that base or pattern. Ensure that volume is above the recent trend shortly after this breakout occurs. Never pay more than 5% above the trend line. Additionally, familiarize yourself with your stock's thirty-day moving average volume, which you can find on most stock quote pages.
3. Quickly Sell if the Stock Falls Below the Trend Line: Be quick to sell your stock if it falls back under the trend line or breakout point. Generally, stops should be set at about $3 to $5 below the buy point. For more expensive stocks, a little more leeway is acceptable, but never more than a 2% stop loss. Some traders use a 5% stop loss rule. This may mean selling a stock that just attempted a breakout and failed, whether it's within 20 minutes or 3 hours of your purchase.
4. Take Partial Profits on Gains: Sell 20% to 30% of your position when the stock moves up 15% to 20% from its breakout point.
5. Hold Strong Stocks and Quickly Sell Weak Ones: Hold your strongest stocks the longest and sell stocks that stop moving up or are acting sluggish quickly. Remember, stocks are only good when they are moving up.
6. Focus on Strong Groups of Stocks: Identify and follow strong groups of stocks, and try to keep your selections within these groups.
7. Be Aware of Market Sell-Offs: After the market has moved up for a substantial period, your stocks may become vulnerable to a sell-off, which can happen suddenly and dramatically. Learn to set new higher trend lines and understand reversal patterns to help with exiting stocks. Books on Candlesticks or the "Encyclopedia of Chart Patterns" by Bulkowski are recommended reading.
8. Volume is Key to Stock Movement: Volume drives stock movement. Start understanding your stock's volume behavior and how it reacts to volume spikes. These spikes are visible on any chart and are crucial for your stock's movement and success or failure.
9. Evaluate Before Buying on Mentioned Buy Points: Many stocks are mentioned in newsletters with buy points. However, just because a buy point is mentioned doesn't mean it's an automatic buy when that point is hit. Assess the stock's action and volume on the day when the buy point is hit, and take notice of the overall market environment before purchasing.
10. Avoid Using Margin Until Mastery is Achieved: Never go on margin until you have mastered the market, charts, and your emotions. Margin can wipe you out.
#6
Open OverWise board / The Moving Average Roadmap: Un...
Last post by Henrik Ekenberg - Aug 25, 2024, 12:19 PMThe Moving Average Roadmap: Understanding Key Indicators for Trading Success
Moving averages are among the most powerful tools in a trader's arsenal, offering insights into the underlying trends and momentum of a stock or market. By understanding and utilizing different types of moving averages, traders can gain a clearer picture of market dynamics and make more informed decisions. Below is a detailed roadmap of how to interpret various moving averages, from short-term momentum indicators to long-term trend signals.
1. 5-Day Exponential Moving Average (EMA) - Strong Momentum
The 5-day EMA is a fast-moving average that closely tracks the most recent price action. It is particularly useful for capturing strong momentum in the market, as it reacts quickly to price changes.
Use: Traders often use the 5-day EMA to identify short-term momentum. When the price is consistently above the 5-day EMA, it indicates strong bullish momentum. Conversely, if the price is below this level, it signals strong bearish momentum.
Example: In a rapidly rising stock, the 5-day EMA can serve as a dynamic support level. Traders may use it to time entries and exits in momentum trades.
2. 10-Day Exponential Moving Average (EMA) - Short-Term Trend
The 10-day EMA is slightly less sensitive than the 5-day EMA but still focuses on the short-term trend. It provides a balance between reacting to recent price action and smoothing out minor fluctuations.
Use: The 10-day EMA is commonly used to identify the short-term trend. Traders might look for crossovers with other moving averages or price levels to confirm the direction of the short-term trend.
Example: When the price crosses above the 10-day EMA, it often signals a shift to a short-term uptrend. Conversely, a cross below the 10-day EMA might indicate the start of a short-term downtrend.
3. 20-Day Exponential Moving Average (EMA) - Pullback Support
The 20-day EMA is often regarded as a key level for determining the health of an ongoing trend. It provides a medium-term perspective and is particularly useful for identifying pullback opportunities within an existing trend.
Use: Traders use the 20-day EMA to find potential support or resistance during pullbacks. In an uptrend, the 20-day EMA can act as a support level where the price may bounce. In a downtrend, it can serve as resistance.
Example: If a stock in an uptrend pulls back to the 20-day EMA and then rebounds, it may signal a buying opportunity within the context of the ongoing trend.
4. 50-Day Simple Moving Average (SMA) - Uptrend Defense Line
The 50-day SMA is a widely watched moving average that reflects the intermediate-term trend. It is often referred to as the "uptrend defense line" because it tends to act as a significant support or resistance level.
Use: The 50-day SMA is crucial for identifying the strength of an uptrend. If the price remains above the 50-day SMA, the uptrend is generally considered intact. A break below this level may signal weakening momentum.
Example: Many traders consider a stock's ability to stay above the 50-day SMA as a sign of a strong and healthy uptrend. A decisive break below it might indicate a trend reversal or a deeper correction.
5. 100-Day Simple Moving Average (SMA) - Big Price Dip
The 100-day SMA provides a longer-term perspective and is often used to identify major dips or corrections within an overall trend. It offers a more smoothed-out view of the market compared to shorter moving averages.
Use: The 100-day SMA is useful for spotting significant price dips in an ongoing trend. Traders may look to this level for potential buying opportunities during corrections or for confirmation of a trend change.
Example: If a stock in an uptrend pulls back to the 100-day SMA, it might present a buying opportunity for traders who believe in the longer-term trend. A failure to hold this level could suggest a deeper correction or reversal.
6. 200-Day Simple Moving Average (SMA) - Bull's Last Stand in an Uptrend, Bears' Last Stand in a Downtrend
The 200-day SMA is one of the most respected and widely followed moving averages. It represents the long-term trend and is often considered the "line in the sand" between bullish and bearish conditions.
Use: The 200-day SMA is crucial in determining the overall market trend. In an uptrend, it serves as the bull's last line of defense, while in a downtrend, it acts as the last stand for bears. A breach of the 200-day SMA can have significant implications for the long-term direction of the market.
Example: If a stock has been in a long-term uptrend and then breaks below the 200-day SMA, it may signal a major trend reversal. Conversely, if a stock in a downtrend manages to break above the 200-day SMA, it could indicate the start of a new bullish trend.
7. 250-Day Simple Moving Average (SMA) - Value Zone
The 250-day SMA represents approximately one year of trading data and is often used by long-term investors to identify value zones. This moving average can help determine when a stock is trading at a level that may offer value compared to its historical price action.
Use: The 250-day SMA is used to identify long-term value opportunities. When a stock trades near or slightly below this level, it may be considered undervalued by long-term investors looking for entry points.
Example: A stock that has pulled back to the 250-day SMA after a significant run-up might be entering a value zone, where long-term investors see an opportunity to buy at a favorable price.
Conclusion: Utilizing the Moving Average Roadmap
The moving average roadmap provides traders with a comprehensive set of tools for analyzing market trends across different timeframes. By understanding the role of each moving average—from the short-term momentum indicated by the 5-day EMA to the long-term value zone identified by the 250-day SMA—you can develop a more nuanced and effective trading strategy.
Each moving average offers unique insights, and when used together, they can help you navigate the market with greater confidence and precision. Remember, the key to successful trading lies in understanding these indicators within the context of your overall strategy, using them to guide your decisions rather than relying on them in isolation. Whether you're managing momentum trades or looking for long-term value, the moving average roadmap can be an invaluable guide on your trading journey.
Moving averages are among the most powerful tools in a trader's arsenal, offering insights into the underlying trends and momentum of a stock or market. By understanding and utilizing different types of moving averages, traders can gain a clearer picture of market dynamics and make more informed decisions. Below is a detailed roadmap of how to interpret various moving averages, from short-term momentum indicators to long-term trend signals.
1. 5-Day Exponential Moving Average (EMA) - Strong Momentum
The 5-day EMA is a fast-moving average that closely tracks the most recent price action. It is particularly useful for capturing strong momentum in the market, as it reacts quickly to price changes.
Use: Traders often use the 5-day EMA to identify short-term momentum. When the price is consistently above the 5-day EMA, it indicates strong bullish momentum. Conversely, if the price is below this level, it signals strong bearish momentum.
Example: In a rapidly rising stock, the 5-day EMA can serve as a dynamic support level. Traders may use it to time entries and exits in momentum trades.
2. 10-Day Exponential Moving Average (EMA) - Short-Term Trend
The 10-day EMA is slightly less sensitive than the 5-day EMA but still focuses on the short-term trend. It provides a balance between reacting to recent price action and smoothing out minor fluctuations.
Use: The 10-day EMA is commonly used to identify the short-term trend. Traders might look for crossovers with other moving averages or price levels to confirm the direction of the short-term trend.
Example: When the price crosses above the 10-day EMA, it often signals a shift to a short-term uptrend. Conversely, a cross below the 10-day EMA might indicate the start of a short-term downtrend.
3. 20-Day Exponential Moving Average (EMA) - Pullback Support
The 20-day EMA is often regarded as a key level for determining the health of an ongoing trend. It provides a medium-term perspective and is particularly useful for identifying pullback opportunities within an existing trend.
Use: Traders use the 20-day EMA to find potential support or resistance during pullbacks. In an uptrend, the 20-day EMA can act as a support level where the price may bounce. In a downtrend, it can serve as resistance.
Example: If a stock in an uptrend pulls back to the 20-day EMA and then rebounds, it may signal a buying opportunity within the context of the ongoing trend.
4. 50-Day Simple Moving Average (SMA) - Uptrend Defense Line
The 50-day SMA is a widely watched moving average that reflects the intermediate-term trend. It is often referred to as the "uptrend defense line" because it tends to act as a significant support or resistance level.
Use: The 50-day SMA is crucial for identifying the strength of an uptrend. If the price remains above the 50-day SMA, the uptrend is generally considered intact. A break below this level may signal weakening momentum.
Example: Many traders consider a stock's ability to stay above the 50-day SMA as a sign of a strong and healthy uptrend. A decisive break below it might indicate a trend reversal or a deeper correction.
5. 100-Day Simple Moving Average (SMA) - Big Price Dip
The 100-day SMA provides a longer-term perspective and is often used to identify major dips or corrections within an overall trend. It offers a more smoothed-out view of the market compared to shorter moving averages.
Use: The 100-day SMA is useful for spotting significant price dips in an ongoing trend. Traders may look to this level for potential buying opportunities during corrections or for confirmation of a trend change.
Example: If a stock in an uptrend pulls back to the 100-day SMA, it might present a buying opportunity for traders who believe in the longer-term trend. A failure to hold this level could suggest a deeper correction or reversal.
6. 200-Day Simple Moving Average (SMA) - Bull's Last Stand in an Uptrend, Bears' Last Stand in a Downtrend
The 200-day SMA is one of the most respected and widely followed moving averages. It represents the long-term trend and is often considered the "line in the sand" between bullish and bearish conditions.
Use: The 200-day SMA is crucial in determining the overall market trend. In an uptrend, it serves as the bull's last line of defense, while in a downtrend, it acts as the last stand for bears. A breach of the 200-day SMA can have significant implications for the long-term direction of the market.
Example: If a stock has been in a long-term uptrend and then breaks below the 200-day SMA, it may signal a major trend reversal. Conversely, if a stock in a downtrend manages to break above the 200-day SMA, it could indicate the start of a new bullish trend.
7. 250-Day Simple Moving Average (SMA) - Value Zone
The 250-day SMA represents approximately one year of trading data and is often used by long-term investors to identify value zones. This moving average can help determine when a stock is trading at a level that may offer value compared to its historical price action.
Use: The 250-day SMA is used to identify long-term value opportunities. When a stock trades near or slightly below this level, it may be considered undervalued by long-term investors looking for entry points.
Example: A stock that has pulled back to the 250-day SMA after a significant run-up might be entering a value zone, where long-term investors see an opportunity to buy at a favorable price.
Conclusion: Utilizing the Moving Average Roadmap
The moving average roadmap provides traders with a comprehensive set of tools for analyzing market trends across different timeframes. By understanding the role of each moving average—from the short-term momentum indicated by the 5-day EMA to the long-term value zone identified by the 250-day SMA—you can develop a more nuanced and effective trading strategy.
Each moving average offers unique insights, and when used together, they can help you navigate the market with greater confidence and precision. Remember, the key to successful trading lies in understanding these indicators within the context of your overall strategy, using them to guide your decisions rather than relying on them in isolation. Whether you're managing momentum trades or looking for long-term value, the moving average roadmap can be an invaluable guide on your trading journey.
#7
Open OverWise board / Re: Dan Zanger’s 10 Golden Tra...
Last post by Henrik Ekenberg - Aug 25, 2024, 09:42 AMDan Z. is a Swing trader.
#8
Open OverWise board / Re: Dan Zanger’s 10 Golden Tra...
Last post by Investgbg - Aug 25, 2024, 08:29 AMGreat thread! 👍 Do you know how Zanger trade longs vs swings? The rule of selling 20-30% after 20% advance sounds more of a long position since he let the rest run.
#9
Open OverWise board / Dan Zanger’s 10 Golden Trading...
Last post by Henrik Ekenberg - Aug 24, 2024, 09:12 PMDan Zanger's 10 Golden Trading Rules
1. Make sure the stock has a well-formed base or pattern.
Start by identifying stocks with solid bases or well-formed patterns. This foundation is critical for determining the potential success of a trade.
2. Buy the stock as it moves over the trend line of that base or pattern and ensure volume is above the recent trend shortly after this breakout occurs.
Never pay up by more than 5% above the trend line. Familiarize yourself with your stock's thirty-day moving average volume, which is available on most stock quote pages.
3. Be very quick to sell your stock if it falls back under the technical buy area or breakout point by $3 to $5.
The more expensive the stock, the more leeway you can give it. Some traders use a 5%-7% stop loss rule, which may mean selling a stock that fails shortly after breaking out.
4. Sell 20 to 30% of your position as the stock moves up 15 to 20% from its breakout point.
Lock in some gains as the stock appreciates, helping to reduce risk while allowing you to capitalize on the upward move.
5. Hold your strongest stocks the longest and quickly sell stocks that stop moving up or are acting sluggish.
Remember, stocks are only valuable when they're moving up. Don't hesitate to exit positions that aren't performing.
6. Identify and follow strong groups of stocks and focus your selections within these groups.
Strong sectors often lead the market, and being aligned with them can increase your chances of success.
7. After the market has moved for a substantial period, your stocks become vulnerable to a sell-off, which can happen fast.
Learn to set new higher trend lines and recognize reversal patterns to help you exit. Some may benefit from reading a book on Candlesticks to improve their understanding of reversal signals.
8. Remember it takes volume to move stocks.
Get to know your stock's volume behavior and how it reacts to spikes in volume. Volume is key to understanding a stock's movement and success or failure.
9. Just because a stock is mentioned with a buy point in a newsletter doesn't mean it's an outright buy when the buy point is touched.
Evaluate the stock's action and its volume at the time the buy point is hit. Also, consider the overall market environment before making a purchase.
10. Never go on margin until you have mastered the market, charts, and your emotions.
Margin can amplify both gains and losses. It's crucial to have a solid understanding and control over your trading before using margin, as it can quickly wipe you out.
1. Make sure the stock has a well-formed base or pattern.
Start by identifying stocks with solid bases or well-formed patterns. This foundation is critical for determining the potential success of a trade.
2. Buy the stock as it moves over the trend line of that base or pattern and ensure volume is above the recent trend shortly after this breakout occurs.
Never pay up by more than 5% above the trend line. Familiarize yourself with your stock's thirty-day moving average volume, which is available on most stock quote pages.
3. Be very quick to sell your stock if it falls back under the technical buy area or breakout point by $3 to $5.
The more expensive the stock, the more leeway you can give it. Some traders use a 5%-7% stop loss rule, which may mean selling a stock that fails shortly after breaking out.
4. Sell 20 to 30% of your position as the stock moves up 15 to 20% from its breakout point.
Lock in some gains as the stock appreciates, helping to reduce risk while allowing you to capitalize on the upward move.
5. Hold your strongest stocks the longest and quickly sell stocks that stop moving up or are acting sluggish.
Remember, stocks are only valuable when they're moving up. Don't hesitate to exit positions that aren't performing.
6. Identify and follow strong groups of stocks and focus your selections within these groups.
Strong sectors often lead the market, and being aligned with them can increase your chances of success.
7. After the market has moved for a substantial period, your stocks become vulnerable to a sell-off, which can happen fast.
Learn to set new higher trend lines and recognize reversal patterns to help you exit. Some may benefit from reading a book on Candlesticks to improve their understanding of reversal signals.
8. Remember it takes volume to move stocks.
Get to know your stock's volume behavior and how it reacts to spikes in volume. Volume is key to understanding a stock's movement and success or failure.
9. Just because a stock is mentioned with a buy point in a newsletter doesn't mean it's an outright buy when the buy point is touched.
Evaluate the stock's action and its volume at the time the buy point is hit. Also, consider the overall market environment before making a purchase.
10. Never go on margin until you have mastered the market, charts, and your emotions.
Margin can amplify both gains and losses. It's crucial to have a solid understanding and control over your trading before using margin, as it can quickly wipe you out.
#10
Open OverWise board / Re: Trading rules
Last post by Henrik Ekenberg - Aug 21, 2024, 06:31 AMIf traders could learn to patiently wait for the right conditions before entering a trade, they would significantly increase their profitability. The discipline to wait for optimal setups is often the difference between consistent success and missed opportunities
Longer Post : https://overwi.se/forum/index.php?topic=241.0
Longer Post : https://overwi.se/forum/index.php?topic=241.0