Moving averages are one of the oldest and most popular technical analysis
tools.
A moving average is the average price of a security at a given time. When
calculating a moving average, you specify the time span to calculate the
average price for X number of periods. For example, 20 periods. These
periods may be 5 minute bars, 15 minute bars, 60 minute or daily bars).
The classic interpretation of a moving average is to use it to observe
changes in prices. Investors typically buy when a security's price rises
above its moving average and sell when the price falls below its moving
average.
The moving average crossover method calculates two moving averages, each
based on a different number of periods of trading data. When the
shorter-term (fewer periods) average crosses above the longer-term average
from below, this is a buy signal for the next bar’s open. When the
shorter-term average crosses below the longer-term average from above, this
is a sell signal for the next bar’s open.
The current charts we are using calculate a 5-period and a 20-period
exponential MA of the closing prices on 60 minute bars. If the 5-period MA
crosses above (becomes greater than) the 20-period MA, you would buy the
next bars opening because the system is saying that an uptrend has begun.
You maintain this long position as long as the 5-period MA is greater than
the 20-period MA. When the 5-period MA crosses below the 20-period MA, the
trend is now down and you would liquidate your long position and establish a
new short position on the next bars open.
Let's look at BEA Systems Inc. (NASDAQ:
BEAS).
The NASDAQ has been retracing since September 1, 2000.
We have 7 days with NASDAQ stocks dropping.
We are in an oversold condition and many stocks are oversold.
This is the time to be looking for reversals from retracement to a new
uptrend.
Yesterday we looked at TLAB for a possible reversal and it did reverse.
BEAS is another stock with a similar pattern.
Since September 1, BEAS has been moving lower.
Today, BEAS flashed a Moving Average Buy signal.
I would Buy BEAS here.
I would place a stop 62 �.
Look for stocks with similar patterns that are starting to turn up.
