moosh, jack the bear, johny be good. thanks for the comments/questions.
LESSON3 MOVING AVERAGES...WHEN TO SELL?
so, you have bought a stock, and through luck or judgement( hopefully the chartist aided latter !!) it is doing well, and you may be 20-30% up. So what do you do? really this depends on your objectives and your risk appetite. For some stocks, i know full well that i have no emotional attactchment to them, and i mainly bought them for the technical reason of being OVERSOLD on the RSI, and a reversal sign had appeared on the candles AND the stock had found support on the MAs ( moving averages). p.s all these elements will be dealt with so don,t panic. So with NVE i bought and sold within 1 month, for 30% profit knowing that it was really just a corrective bounce that i was buying into, so sold at the first signs of a retrace ( using the fibonacci targets as mentitoned in lesson 2).
WHAT ARE MOVING AVERAGES?
really just a graphical representation of where a stock has been in the short , medium and long term, and they are really just " smoothed out" lines to give a simple illustration. I use exactly the same setings as for bollinger, i.e 3 month chart, with 9 day moving base, BUT this time choose the " 3SMA" option from the "graph type" drop down box. repeat this for the 6 month and 1 year ( as per the bollinger lesson).What you are looking for is that the share price will be ABOVE one of the 3 main short term MAs, especially if it has also crossed the 3 month bolinger upper line.As long as the sp stays ABOVE or near to the upper bollinger line then there is no need to think about selling, if however think that the share price rise was a little " dodgy" and you anticipate a " retrace" then the moving averages will give you your 3 "supports" that you are hoping your stock will settle and bounce from. I have recently bought TEG agian after selling in febuary i think, and now that TEG is doing well after a great RNS ( which i had already built into my thinking) here are my thought processes in deciding to sell or hold for further gains. I am choosing TEG becuase i have posted technicals on it for 12 months on here and iii ( spurslegend), and feel i know the stock well. So here are riddlers' thoughts, in stages
1. i sold TEG early in 2009 becuase it was overbought on the RSI, the candles had shown a "reversal pattern", and it had completed a hefty 50% fibonacci retrace of its high to low slump, and i was getting alarm bells.
2. i decided that once TEG crossed back through its short term MA ( on the 3 month chart), and the fact it had, yet agian failed to get past the VERY IMPORTANT 200 day MA, i concluded that this rise from 34p to 55p in early 2009 was just a " bear market bounce" or "dead cat bounce", and wasn,t going to lead to any long lasting upturn. It crashed beneath its first short term MA ( 9 day), so i decide to sell, feeling that it would go back down till it found some support either from its previous low of 34p or one of its 3, 6 or 12 month MA......importantly i told myself NOT TO BUY AGIAN untill support had been found.
3. as you will see from my posts on www.iii.co.uk, i was ideally waiting for the 61.8% fibonacci retrace of the gains that had took it to 55p from 34p, and was even anticiapting a re-test of the 34p lows. I watched TEG fail each new support, and simply fall further.
4. A few weeks ago TEG got some good news at the same time i noticed that it had found support from its MAs, AND the RSI ( relative strength) was very "oversold", AND the candles had sugested a change in trend. Therefore TEG was back on my radar.
5. using the bollinger thoery in lesson 2 i lay in wait, just waiting for the tell tale sideways movement whereby a share just creeps above the upper bollinger line. I combined the RNS with the other technical indicators and decided that TEG had found support, and was ready for another attack upwards, so i bought in a few weeks ago.
6 you will notice from my posts on here, that what was really exciting me was the fact that TEG was approaching its holy grail... the 200 day MA ( found on the 1 year chart using a 50 day moving base and 3SMA graph option). If TEG could cross this, it is the first sign that a stock has put an end to its bear market decline ( identified from when it slipped BENEATH the 200 day MA , from the 2 year chart).
7. i am now in profit, but the fact that we are above the 200 day MA and the fact that TEG has excellent growth prospects, means i am now going to take a longer term profit view compared with NVE which i sold. I will now calculate the fibonacci targets, i will make note of the MAs ( short/med/ long), i will watch out for reversal signs on the RSI and candles BUT...i will not be hasty to sell, as i feel we are now on the start of a genuine BULL market for TEG, which could last months.
another interesting one is TRC, it has moved so fast that it is "ahead" of any of its 3 month MAs ( 9,18,36 day), it is having a little pause for breath, and technically the "support" ranges from 36p to 28p on the 3 month triple MA. This doesn,t sound alot, but a drop from the recent high of 40p to a potential support of 28p is almost 25% paper profit down. HOWEVER with the share buy back by TRC this would be foolsih to sell unless you were 50% up for e.g and wanted no more of the risk/ uncertainty associated with a risky indian property stock, which is a sensible way to trade. for me, i am holding, waiting for more upside but wary that support hasn,t been found just yet.
i like the computer stuff, but don,t use them. However they are good for giving you the basic data at your fingertips. however, like with britishbulls.com, i would never use a site for my decisions, just because it is purely based on the data NOT the "background" info on the stock. My advice would be to analyse your stock first, THEN go back to one of the sites to see how your interpreation compares.
atb RSI and candles tommorrows lesson. in the meantime start having a look at the "chart" function for stocks on www.iii.co.uk , choosing TEG as our example. You will need to be registered and logged in to activate the "chart" and "java chart" function
riddler!!! heyeeeeeeeeeeeeee!!!!!!!!! VERY IMPORTANT 200 MA. i'm sensing this is v important! i've read elsewhere that it is too, but i've not been playing long enough to see the effects that sp being above 200 MA has in practice. i've seen the effects on chart histories, but playing in realtime is different. once sp is above 200 MA, is it just a case of letting it ride? one of my shares has crossed up over 200 MA (RIFT!) and this is pretty much the reason why i'm holding on for dear life and topping up as often as i can!!!
yeah the 200 MA is key, once RIFT has crossed then found support ABOVE the 200, means that an elliot 5 wave bull market should appear, whereby RIFT should commence a long term uptrend. With elliot wave theory, it suggests that there are 5 main waves, with waves 1,3,5 being "impulsive", in that they are the domminant trend ( up !!), with waves 2 and 4 being " corrective" in that they are larger downward corrections in an otherwise upward thrust. Most stocks bearishly passed beneath thier 200 day MA in summer 2007, which was a massive SELL signal for all stocks and indices ( i didn,t know this when i first started trading in 2007, hence why i have made costly mistakes). stocks which have crossed upward through thier 200 MA are KAH, PSN,MARS,TEG,CHL,AGU and many more by the week
take a look at PSN , on the 1 year chart, 50 day moving base and the 3SMA "graph type" option. You will notice that since it crossed the 200 MA on 31st dec 2008 it has never looked back, and has "bounced off" its red 200 MA line 3 or 4 times, creating this 1st elliot wave impulsive move.You will notice how the 50 and 100 day MA from this 1 year chart, have upwardly crossed through the 200 MA which is BULLISH. Therefore any small retraces should be ignored IMHO as just natural retraces in an otherwise bullish trend. So in theory evry dip in PSN should be seen as a buying opportuntiy in theory. As a caveat, i hold PSN as one of my costly mistakes of 2007/08, and now will hold till break even and reassess
wow. i can't wait for ALL my stocks to be above 200 MA!! i'm excited by the profits i make while they're UNDER the 200 MA! how will i cope when they're above lol! i like elliott wave theory. buying after first pullback (be it under or over the 200 MA) seems to be working for me! i think i'm more excited by the fact that RIFT 10/30 MA weeklies are just about to cross 200 MA too!!!!!!
...i suppose i should've also not been so panicky recently in CEY when sp dropped to 52p or something - that was the 30 day MA - and has since retreated back up - again, above the 200 MA. i love it when i see theory working in realtime!!! thanks for the response! makes me feel that bit more confident in my trading decisions.
Question Riddler I hold a company called Xchanging. I have applied the 200SMA to it and it passed through the 200SMA in Jan this year yet since then has crashed to below all 3 SMAs and is trading well below bollinger lines and SMAs. It is a long term hold and technicals are sound for this growing company but just interested to see why this might be the case. The case of PSN shows a good example of your theory. Applying these technicals to Dav would suggest we are heading towards meeting our 200SMA line long term. As we are trading well above SMAs in short term do you expect to see a bounce back as explained in the elliot waves?
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