I am the first to admit that I am not a TA guy. Oh, I've read the books, and tried different theories, from Stochastics, BB's, MACD's , and the rest. Boiled, poached, fried and scrambled them all, thrown in a dash of Fundamentals and historicals, with some Candlestick garnish and right when I'd think I had the right recipe I would get whipsawed back and forth so violently I'd spend the night over the pot(not stew).....;-)
Who remembers ole Ken Roberts Course? I took that back in the early 90's and made too much money at first. Too much, in that I thought I had a corner on Commodities. why there was nothing to it! I quintupled my stake the first month. I proceeded to lose it all shortly thereafter. Anyways, his expression was Kiss. Keep it simple, s.t.u.p.i.d!
One of the simplest tools out there is the SMA, which stands for simple moving average. I like to think of it as the simple moving average, because it is pretty simple. It is determined by adding the closes of the last x days and dividing by x. Pretty simple.
I like the 50, 100 and 200, because they are err...simple.
I like to buy stocks or options when the 50 is crossing back over the 100 or 200 to the upside, buying again when the 100 crosses over the 200 to the upside, and the reverse in unloading a stock. This is not perfect, but it can keep you out of the serious type of trouble. I like to use candlesticks for the stock. Here are a few examples:
What you will note here is that you would buy the stock at the end of Dec at 28.25 as the 50 day crosses the 100 day, you would buy again in March when the 100 crosses the 200. You would hold your positions(depending on your strategies around the EX) until the 50 crosses back over the 100. This is shown in late August 2011 on this chart at around 29.00.
Here you would have gotten out of one of my favorite stocks last year at 18.00:
And you would still not touch it until the 50 day moves over the 100, which may be never. It is completely upside down cf to AGNC. Now you might say buy at the bottom. I say I'm keeping it simple. When AGNC crosses with the 50 moving back down over the 100 or the 100 over the 200, I'm gone also.
Here is the Dow. The principle works for all securities:
Beautiful isn't it? Got out last summer at 12,300 as 50 crossed over 100(short the Dow), then cover when the PPS crossed back over the 50 at 11,300. Go long the Dow when the 50 crossed back over the 100 at 11,700 in Dec, double down Long at 12,300 in Jan when the 50 crossed the 200 and be Long today at 13,000 as the 50, 100, 200 are in perfect alignment. That would be 3700 point gain, in those three transactions. I'm just saying.....;-)
Do you own DD, with your own favorite stock or bond and see how this works. Many probably already do.....
I got tired of brillo padding off the sharpie on my forehead after forgetting the rules on SMA and made a simple excel sheet that follows his guidelines.
Willing to send to those interested- I do not think you can post files here.
It is not perfect as Doc says but appears to be the the rails that keeps your ball out of the gutter
the only problem with any type of investing, technical, fundamental, value, buy and hold, etc, is that if it works more than 50% of the time we would all be ________ investors.
the aggregate of all investing styles is what makes up a market.
iuf we were all _______ investors, _________ would stop working.
One addition that I've attached to the SMA are probability boundaries, high and low; that are unlikely to be exceeded x% of the time, where you choose x. X represents the risk % with which you are comfortable. I set mine at 3 sigma for volatile stocks and 1 sigma for stable stocks. Agnc is a stable stock, so I track it with 1 sigma boundaries. When a boundary is reached, I sell or buy according to the - or the + boundary. To calculate these boundaries, one must have sufficient history data to determine peaks and valleys of the closing price (one could also use intra-day highs and lows instead of the closing price). These peaks and valleys are statistically weighted to obtain the 50% mean and the standard deviation thereto.
Knowing the boundaty price for a stock, gives guidance for entry and selling which, when coupled with the crossing patterns of the 50 DMA and 100 DMA is highly dependable for trading (probability is >80%).
That gives the investor/trader and edge that rivals the big institutions that use computer programmed trading.
I took the Ken Roberst course in '94. Remember charting with a ruler and a red pen!? Boy we've come a long way.
Good advise on the SMA's. One thing I would add is to make sure to not only look at the 1 year chart but also the
1 week chart.
Had some RAI investors done that they could have gotten out yesterday before today's melt down!
Good luck on Ll your plays!
With all this talk about SMA's, I thought I'd offer another point of view that I was fortunate enough to have heard enough in my trading career to finally do something about it.
The question you can ask yourself is whether you really need all those squiggly lines on your chart to see what is going on? SMA's are by their very nature late. The longer the SMA, the later it is.
By the time the 200 day MA does something you'll see it on your chart in the prices!
The other thing that happens is that you see some squiggly line cross another and yet another is sloped the right way so you jump in long. The stock sells off. If this happens a few times, you lose faith in your squiggly lines and change them, look for new squiggly lines, etc.
The advice that was given to me was to clear all of them off your charts. Get a few different timeframes (say a daily and an hourly chart to start with). Since this is a mReit board, put the ETF, REM, on your screen to see what the industry is doing.
Then pull up AGNC, MTGE (since everyone here likes it), NLY, HTS, IVR, CMO, CYS, etc. on your screens and look at them. Keep an open mind and let the price action guide you.
Are we trending up, down, sideways? Is there a low price that holding? Are we hitting a general area and then selling off?
I believe this will give you a much better feel for trading this industry. Combine this with the knowledge of what generally happens during the dividend run-ups, SPO's, book value, etc., I think you'll really have something.
"Have you been talking to my wife?...;-) The only part she disagrees with is the overpaid part, especially since she wants the whole house re-done and wonders why Ray gets to go to Moorea and we don't...."
Some truths are universal. I told my wife about Ben's trip to Rome, financed by his stock earnings, and she was wondering why we don't....you get the picture.
BTW, I'm enjoying your review of the SMA. In my preliminary review of every stock, I use the 50 day SMA and the 200 day SMA, looking for Death Cross/Golden Cross scenarios. I like your addition of the 100 day SMA to get a little closer to the ground.
Well, SHIVER MY TIMBERS!!! (thought you'd like me acting in oceanographic character for you)
Yes your sma does appear to get you out of the way of the big 2007/2008/2009 nastiness.
No, I didn't cherry pic the 2 year chart - I had no idea a technical trader would even think of looking back 5 years! I just chose the 2 yr because I naively thought that would be long enough for your system to demonstrate itself. And I had no ulterior motive for picking BRK (I don't own it either) other than you said Apple was too racy and a stodgier stock would work better with your system and I couldn't think of a more stodgy stock than BRK. Although, I can understand your skepticism of me, an anonymous yahoo poster; I'm afraid that same reason gave me the same feeling towards your sma rules.
If you bought BRK and held, you would have about the same return, but obviously you would have had to stomach the Drop. I tend to buyandhold but also use my positions as canaries in the coal mine, adding to them when they become cheap. This strategy seems appropriate to help me determine when to add.
Thanks, I'll consider sma as another tool to trade around a core holding.
Your wife sounds very wise.
I know, I know....
Tell that to the smart folks who followed the three little Pigs, I mean SMA's last year and got out of that nasty stock, I am showing that board not to get back into. They need to follow the "RULES" and NEVER enter Long NLY until all of the short SMA's cross the 200. Behold the mystery:
Behold the beauty. 17.80 exit Sept 1, 2011. Saved them from the catastrophic capital loss. Of course, some folks have contacted me, irate, because they couldn't deduct the capital losses, that all of the other folks that still hold NLY shares, are entitled to deduct.
I am still telling them to hold off until the 50 and 100 cross over(shhhh...never), and to sell that sick puppy and come over to winners, which we smart people know are AGNC and MTGE.
Just trying to help them... ;-)