Ever wanted to know a proven method to track the trends and make the trend of the market your personal friend?
Here’s how you can do so:
1. Find a short term moving average. Use 20 days simple moving average
2. Find a longer term moving average. Use 65 days simple moving average.
Look for a “golden cross” to denote market trending upwards to buy when the 20 days simple moving average crosses over the 65 days simple moving average. When this happens we know the short term average of 20 days is stronger than the 65 days average, suggesting currently the market is trending upwards and is in strength.
Conversely, look for a “dead cross” when the market is trending downwards to sell when the 65 days simple moving average crosses over the 20 days simple moving average. When this occurs, we know the short term strength of the market is weaker than the past 65 days and the market is falling off from its high prices.
While we can follow the trend in this way and avoid a lot of whipsawns by taking such periods of the simple moving averages, we actually do suffer the drawback of a less sensitive indicator. If we wish to be more responsive, and are willing to suffer some whipsaws as well, we can modify the moving averages to shorter duration moving averages, such as a crossover between a 7 day and a 15 day simple moving average.
Trend following systems are always lagging, so they are always slower than what we would like to have, and are in fact confirmatory. These systems are generated and always sighted AFTER the market has turned.
But when you adopt this as a trading method, over the long term, you will find you will be able to track the trends of the markets effectively, and will turn out to be a winner in the stock markets.
Peter Lim, Certified Financial Planner, has been a registered dealer representative and is currently a Trading Coach and author of several ebooks on stock market trading and investment. He provides a free Swing Trading course and many free resources at http://www.online-guides.info/Swing-Trading Learn about his Swing Trading method at http://signaldot.poolofwisdom.com/swingbook.phtml