I’ve been trading for the last 8 months without moving averages and have not missed them at all. They are your training wheels in the beginning but after you’re up and rolling along they will get in the way and limit your thinking on where price can go. One of my biggest challenges even when I had my moving averages on my charts was to know when a stock on my long list was no longer a long? The same question goes for the short side as well. When you’re new, it’s best to keep your list separate the entire day, this means if a long is on the long list you play it long or not play it at all. I’d never even think about trading it short against my bias, but as the years have gone by I’ve notice that some of my bias’ have been very wrong. It only makes sense, if you have a long bias because of the daily buy that triggered, believe me, just about every professional trader is looking at the same thing and will be eager to pile in long just as the market opens, but when their trade goes short, it catches all these traders by surprise and they must sell their long positions which causes the stock to really sell off hard.
Recently I’ve found my line in the sand to determine what is a long vs. a short, it’s the “Prior Day’s Close”. Many platforms will draw this line automatically on your charts daily. If a stock is on my long list, I play it long as long as price remains above its prior day’s close, the reverse for shorts. Think about it, why would you go long on a stock that is showing weakness and is trading below yesterday’s closing price??? As long as price remains above its prior day’s closing price and sets up above I’ll keep playing it long and if it pivots below the prior day’s close, I’ll take it short. Aha moment for myself when I got this down in my head and what is really cool is this line is at the same price on all time frames unlike the moving averages. I’ve got two examples this week with plays taken long right at the prior day’s closing price that setup nicely. My first example is from Monday on my play in XLNX which I took long as it bottom on it’s prior day’s closing price and took off like a rocket. I’m pretty sure I attempted the first buy that failed and I tried it again off the prior day’s close…
XLNX 04012014
My next example comes today in my trade in JNPR which I found as beautiful 9:45 am wide range bar to the upside. My first attempt stopped out but price setup again but this time at its prior days close. I started the play with a small share size since the market was rather weak and I was not sure how long I would have the markets help on my play. Price just rocketed upward finally giving me an RBI which allowed me to add to my play. I took just about all of my profit at my first target as I notice the market rolling over again. If I had the 20 period moving average up, I’d missed out on both of these plays because the moving averages were still above price and as we are taught in the beginning, go long when you’re above the 20 ma, go short when price is below. You can see in this example on how the moving averages are limiting and are not giving you the information that you really need to become an effective trader… Price, Volume, and the prior day’s close is all you need to become a profitable trader, give it a try!
JNPR 04032014
PS CBS and CSS are played truly against the trend and will not follow these rules…