Let the market tell you when to get in and when to get out. Although some
analysts may tell you that stocks are at a low value, the market will tell
you
when to be long.
Many stocks did give Buy signals Monday and the question is how long will
this last?
Moving Average Crossovers
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 days) average crosses above the longer-term average from
below, this is a buy signal for tomorrow's open. When the shorter-term
average crosses below the longer-term average from above, this is a sell
signal for tomorrow'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 Cisco Systems, (NASDAQ:
CSCO)
On Monday, CSCO bounced along with many stocks after the NASDAQ hit yearly
lows.
How far will that rally go?
If we use the Moving average crossover method, CSCO has run its counter
trend move.
It looks like CSCO will give a Sell signal if it drops back below 52.
I would maintain my long in CSCO and have a stop at 52.
Many stocks have similar patterns and you should plan your exits on long
positions. If they keep going up, let your profits run. If they start
going down, know your exit.
