Stock Trading: What to Do and Not Do Below the 200-Day Moving Average
With stocks continuing to fall and many moving below their 200-day moving averages, it is a good time to remind ourselves of what the data says about buying stocks after they have dropped beneath their 200-day moving averages.
From Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs
We looked at over 8 million trades of stocks from 1995-2007. We then looked at the 5-day behavior of these stocks when they were above the 200-day moving average and below the 200-day moving average …
… Most cataclysmic individual stock drops, over the past century, have occurred when the stock was under its 200-day moving average. A stock’s decline may have started above the 200-day MA but in nearly all cases, the majority of its decline occurred after it broke below the 200-day moving average.
There will always be opportunities to buy stocks after they have pulled back above the 200-day moving average. Waiting for those opportunities, rather than chasing after stocks that have already broken down below their 200-day moving averages, is a quantified way to trade stocks with the historical edges on your side.
For more quantified stock trading edges like these, click here to download your free copy of Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs.
Here are 7 Stocks You Need to Know for Monday
Among the few stocks making gains on the final trading day of the week were safety stocks like ^HNZ^ and ^KFT^. ^PEP^ also gained on the day, while ^KO^ succumbed to selling late in the session after spending most of Friday in the green.
Down by 4% and back below its 200-day moving average ahead of trading on Monday are shares of ^ORCL^.
Sellers were especially aggressive in the energy sector, sending shares of ^BHI^ lower by more than 4%.
And scheduled to report quarterly earnings on Monday, ^NKE^ pulled back by more than 1% in Friday’s session and continues to trade just below its 200-day moving average.
David Penn is Editor in Chief of TradingMarkets.com