Advanced Moving Average Analysis
Using advanced moving average analysis trading methods is one way to try and outperform the market. From a trading aspect, moving averages are one of the easiest trading tools to use for one simple reason.
Placing a moving average line on a chart does not require knowledge of how to place different anchor points. Rather, a moving average is usually selected from a list of features and is automatically placed on a chart after the user selects 1 or 2 simple options.
Moving Average Trading Tips
Learning to apply as many of these moving average trading tips as possible will help your investing success. Following are some of my moving average analysis trading tips and techniques.
These techniques can be used individually with consistent success. However, just like every other technical analysis method, when a secondary method of technical analysis confirms the results of the first method, it provides more confidence that the trade or investment set-up that you are analyzing is possible based on the concurring analysis results.
After a Golden Cross Develops, Purchase the Next Pullback to the 200 Day Moving Average
This trading technique is excellent when used as part of a scale-in strategy. After the development of a Golden Cross on a stock chart, the next pullback to or below the 200 Day moving average line is an excellent opportunity to make a scale-in purchase to go long.
Here is one illustration of how this strategy worked on a real chart. This is a 1 year chart for Apple (AAPL). After the development of its Golden Cross pattern, it provided a really quick opportunity to purchase shares at the 200 Day moving average.
If you were not quick enough to purchase shares on that 1st pullback, AAPL offered 1 additional opportunity to purchase shares at the 200 Day moving average. Each purchase could have netted gains in excess of 15% in a relatively short period of time.
Go Long When the Share Price Re-Gains the 200 Day Moving Average
When a stock first re-gains its 200 Day moving average line, it represents an opportunity to purchase some shares using a scale-in strategy. Be certain that the share price broke back above the 200 Day line in above average trading volume.
Purchase the 1st Pullback to the 20 Day Moving Average
The first pullback to the 20 Day moving average is an excellent opportunity to purchase additional shares for your position. This 1st pullback is after the development of a Golden Cross pattern.
If you want to add more shares of an excellent stock to your holdings, the 1st pullback to the 20 Day moving average is the opportunity to do so. If you have sold any shares on the way up but want to repurchase those shares, the 1st pullback to the 20 Day moving average is an excellent area to make the repurchase.
Use caution before making any purchases on the pullbacks! The selling volume should be decreasing as it gets closer to the 20 Day moving average line. If the selling volume starts increasing as it gets closer, the chances of breaking through and below the 20 Day moving average are increased. Monitor the volume to make this a successful trade.
Be Wary of the 1st Break of the 50 Day Moving Average
When a break below the 50 Day moving average takes place, there is only one more layer of moving average support below. The last line of defense is the 200 Day moving average.
The 1st break below the 50 Day moving average is usually a Bear Trap. As long as the 1st break below the 50 Day moving average occurs on light or decreasing selling volume, then it is ok to continue holding onto any shares in a long position.
However once a break below the 50 Day moving average occurs on heavy selling volume, locking in any remaining gains is a great swing trading strategy. A repurchase of some shares could be made based on the results of the test of the 200 Day moving average support.
Sell Shares Immediately on Breaks Below the 200 Day Moving Average
When a break below the 200 Day moving average occurs on selling volume that is greater than normal trading volume, consider locking in any gains on the stock by immediately selling all your shares.
There are a couple of things to consider first before immediately selling. If this is a “long-term” holding for you and have sizable gains, sitting through the pullback is still an option as well. Selling shares could trigger a taxable event.
If you are a shorter-term trader or a swing trader, selling any shares to lock in gains is usually the best strategy. If the move is too violent and the share prices pushes below the 200 Day moving average too quickly, another option is to continue holding onto your shares until the 1st re-test of the 200 Day moving average. A re-test of the 200 Day moving average would be your next and possible last chance to exit out of the trade at slightly higher prices.
Sell Short the 1st Failed Attempt To Re-Gain the 200 Day Moving Average
