The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
Also, you must realize that as with all trading strategies, opinions can
change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set ups, and
examples of entry and exit strategies.
Defining Trend
We hear the comment over and over again that a trader should trade in the
direction of the trend. This is critical for Intra Day traders, short term
and even mutual fund managers.
But how does one define trend. The first requirement is to define time
frame. The trend on a 5 minute bar chart may be different than that of a
daily bar chart.
The time frame can differ between, but the indicators and studies still
work in most time frames.
For our example here, we are going to use the crossing of a 5 period
exponential average and a 20 period exponential moving average.
Moving averages will never get you in at the bottom of a move, and will not
get you out at the top. It will help you catch the meat of major trends.
As a Day Trader, I always have my finger on the button. When I see a
indicator that says exit, I am out. There are no ifs, ands, or buts. You
have a plan and stick to it.
Since I am in front of a machine all day, it is easy for me to enter and
exit trades. For others, an order in anticipation of a signal may be
appropriate.
For this educational column, we are using 60 minute bar charts.
Let's look at an example in AT & T, T
On July 9, T gave a sell signal using our moving average crossover method.
Late yesterday, on July 21, T signaled a Buy.
The indicator gave a signal. However, not all signals work out.
Today, July 22, 1999, T reversed again to a Sell signal and/or a Short sale
signal.
I have seen many stocks recently try to rally, but I am seeing these rally
attempts fail.
The idea of following a trend method such as moving averages is that it
will whipsaw a trader with small losses, but should keep a trader on the
right side of major moves.
Based on this fresh signal, I would exit T here.
An aggressive trader may want to consider a short sale at this time.
I would place my stop at 56 �.
I am sure you have heard, let your profits run and cut your losses. Moving
average crossovers help you with the discipline if you follow the rules.
This method also works well with 5,15, or 30 minute bars.
Have a plan and stick to it!
