If you want to know how to invest in stock for interesting returns with low risk, I propose the use of triple crossing moving averages . This is a well – known, very simple, but no less profitable system.
Before you comment, I must say that the Chartism analysis is generally tricky .
I’ve tried everything: moving averages, support and resistance, bands and oscillators, stars at dawn and dusk, figures shoulders and heads both face up and face down, even some sternum lost out there .. and I have had very mixed results .
The problem I see with technical analysis is that sometimes works great, sometimes awful. In recent years capsizing in the stock market, there have been times when the media were drilled like butter, half were crazy, and the figures seemed made by Picasso.
Therefore, technical analysis must be placed in context: if the stock market is very volatile, better not use it.
So drastically. At least in my experience.
Of course I’m not a big analyst graphics, I prefer the quantitative analysis, and only use the tricks chartists more simpletons.
As the triple junction. Which simply involves crossing 3/2, short, medium and long term. For example:
In late July 2010, Alexion Pharmaceuticals ( ALXN ), took some time side, indefinite state. In August, the exponential averages of 5, 15 and 45 days came together at one point, and then the action began to rise, and the means to separate.
A value of the means of medium and long term is a very close dubiously value. Let’s say the market has a bullish number of people similar to the number of bears. If in that situation a steep climb or a steep descent, often crystallizes into a sustained trend, which can be both bullish and bearish begins.
The advantage of these trends is that many times are long. And are the longer sustained stockings have been together, e.g. the longer the value has been questioned. Somehow, a long period lateral action helps acquire “moment”, that is bullish or bearish momentum.
This is the theory. Now let the details.
When buying. How to buy.
First, before you buy a value, it is to study, watch. And there are hundreds of actions, we need a graphics software that has access to the markets that interest us, (type MetaStock , or VISUALCHART ). And if we do not have chartists programs, we can use free tools on the web, such as Yahoo Financials , or stockcharts , or many others.
Therefore, you must first create us a basket of shares that are better, the longer lateral periods. Pointed out in a spreadsheet operations having their average more or less close, and from there, the we look every 2 or 3 days.
It is better not to follow too many actions. 10 may be sufficient, but also depends on the time we spend. Follow a greater number of shares is going to cause more errors. If we see little action, when one begins to shoot their average, we realize more clearly and faster.
I did a quick scan of shares in the Nasdaq 100, to check which are currently in that state. This has left me:
I’m not saying that these actions are to take off (or collapse) morning; are examples of actions simply on the off ramp. Then they can do it or not.
On the other hand, what use mean ?. Normally we are speaking of exponential averages of 5, 15 and 40/45 days. They may be somewhat different, depending on the type of actions that we are following. A few days up or down in the middle should not have a huge influence.
The fact is that when some actions strong rise 2 or 3 days in a row, and their average, starting to separate, buy. But when exactly ? We have three options:
1- Buy at the time that the 3/2 split 1% or 2% (although this percentage may increase in the case of highly volatile stocks). That is generally simple to buy. The advantage of this method is that we will catch the trend from the beginning, so, if tie no success , we will get higher returns. The downside is that we will have a greater number of false signals.
2- Wait until the action exceeds previous resistance, e.g. a maximum of action earlier in the not too distant. As in the example of ALXN:
The red line is the resistance of a last peak. To overcome, buy (green arrow)
3- The third option is to accumulate. E.G investing half of the capital at the time that the means are separated. You hold the investment, and when the trend is confirmed, either because resistance is exceeded or because there is a correction and then continues to rise, it becomes to buy the rest of the capital.
The second and third options are the most cautious. Although we might well choose the first option (buy very fast) if we found other indicators that confirm us the beginning of the trend. These other indicators may be other technical signals, or more frequently, recent favorable news about the company.
This investment style can give great satisfaction when “we take the good wave.” But it has a problem: the success rate is low, typically less than 50%. That is, we will have many operations in losses and little benefit.
If our expectation is positive, we need lose little when you lose, and win big when you win. To do this we must be positioned correctly stop losses, and also speed up “the wave” everything we can. For example, we must properly manage the outputs, but the method that will not be profitable.
For long story, I continue in another post, where we will stop losses, exit strategy and possible outcomes.
It is a simple system, you can follow any investor, right?