Today’s lesson is for those of you who use the 5-day simple moving average as an exit. This article will cover the basic idea just to assure everyone understands the exit strategy the Daily Battle Plan uses.
The 5-day ma exit is one of our favorite exits – along with RSI exits. These exit strategies were presented in our most recent book, Short Term Trading Strategies That Work, now in softcover.
The 5-day ma exit looks at the average price over the past five days (today inclusive). Long positions are exited when they close above the 5-day ma. On the short side, the short positions are closed when they close below the 5-day ma.
Intraday the 5-day ma will bounce around. Why? Because its reflecting the current price for today plus the closing prices of the past 4 days. As prices move today during the day, the 5-day ma will move also. The final close of the 5-day ma will be when the security closes for the day. Until then, on an intraday basis it will move until the close.
If you get a chance, identify overbought and oversold conditions in ETFs and then watch how they trade. What you’ll see is the 5-day ma is an excellent tool to use for short term trading and this is further quantified, (along with a number of other exit strategies) in Short Term Trading Strategies That Work.
This is from Larry Connors’ Daily Battle Plan which he publishes each morning. If you’d like to take a free trial click here, or call 1-888-484-8220 ext 1 to start your free trial today.
Larry Connors is CEO and Founder of TradingMarkets.com and Connors Research.