Averaging Up
Much has been written regarding the use of moving averages, and many traders
use them incorrectly, thinking that they can generate buy and sell systems
simply by using breaks above and below the MA. This technique will get you
whipsawed to death, and give your trading account a beating.
At TradersWire, we do not deny
that moving averages can be of benefit to traders, but what you must take into
account is the previous behavior of the stock at or near the moving average, and
the overall strength of the stock when compared to the rest of the stocks in the
market. One of the techniques we like to use is to look for stocks that have a 3-month
relative strength rating of 80 and higher for long candidates, then look for
pullbacks to or near the 20- and 50-day moving averages. An uptrending ADX of 30
or higher is also a good indicator of a strong trend.
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11:06:31
 Black Box (BBOX)
is pulling back to the 20-day moving average. BBOX is now down 0.91 to 63.98
and is carrying a 3-month
relative strength rating of 80 with an uptrending ADX of 46 from
TradingMarkets.com.
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12:57:32
IntraNet Solutions (INRS)
is pulling back to the 20-day moving average. INRS is trading down 0.97 to
38.75 and has a 3-month
relative strength ranking of 80 from TradingMarkets.com.
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One more that I like that we have not profiled today is International
Rectifier
(
IRF |
Quote |
Chart |
News |
PowerRating).
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What this strategy does is put you in stocks that have
outperformed 80% of the rest of the stocks over the last three months, then gives
you an indication of when the stock will resume its uptrend. This technique is
simple, yet dare I say, quite powerful.
Hope everyone had a safe and relaxing holiday.
Until tomorrow,
Duke