Reading The Moves
Moving averages as an indication of future price movement are largely
misunderstood and widely misused by a number of traders. The majority of them
try to make use of the moving average itself as a type of mechanical entry and
exit signal, like MACD or another variation. At TradersWire,
we tend to use the moving average as an inflection point, or an
alert zone to key on, looking for a reversal in direction off it or a momentum
move through it. This will give you more of an indication as to how the stock is
going to act. You can then look for continuation the following day, which is
often a lower-risk, higher-likelihood-of-success play.
You can use the java applet’s search feature to scan for stocks at the end of
the day to find stocks that have either touched or re-touched their 50- and
200-day moving averages. Soon we will add the 20-day moving average as well.
When you get the list you can do a quick look through the charts to scout for
potential trading candidates.
Â
Investors Financial Services
(
IFIN |
Quote |
Chart |
News |
PowerRating) touches its 50-day MA and
blows over it after a momentum gap through an area of potential resistance. The
gap also takes out the 38.2% retracement of the last leg down, which is near the
prior resistance and the 20-day MA. Just as the combination
of the two can support or resist a stock and provide the impetus for a
bounce in either direction, when the convergence in violated, the move can be
explosive. Now daytraders can be on the lookout in the following session for a
continuation move above the high of today.
Â
Micrel
(
MCRL |
Quote |
Chart |
News |
PowerRating) gapped above a trendline and the
20-day moving average this morning prior to recapturing the 50-day moving
average. Note the false overcut of the downward trendline in late March. For the
nimble, keep a watch on MCRL for a move above 35. If it can take this level out
it has room to move higher. If not, don’t be afraid to possibly short it, as it
has room to fall also after gaining 32% in two days.
Use the search feature to spot stocks around the moving
averages, then read the charts for clues. The activity of the stock
around the MA’s – how it has performed in the past when hitting it, for example
– is much more important than the simple act of reaching the moving average.
Only be looking at the charts can you get a tip as to where the stock could be
going next, and by watching for confirmation you will more than likely increase
your odds for success.
Until tomorrow,
Duke
P.S. Many thanks to all of you who wrote to show your support
and add your name to the list of regulars. (It’s now up to about 12!!) Y’all
humble me with your comments and I am truly grateful. Dave is a great friend,
and since he often makes me laugh in his nightly Stock Trading Outlook, I
like to make him chuckle once in a while as well.
Gary
Kaltbaum on TradingMarketsWorld! Gary Kaltbaum will be appearing on the
Intermediate-Term Trading board Thursday, April 19 at 8:00 ET. Be sure to take
this opportunity to chat with and have your questions answered by a leading
intermediate-term trader. Click
here to take your trading to a new dimension.