Moving Averages 101: Second Edition: Incredible Signals That Will Make You Money
A thread 🧵
“The 10-day EMA is a good moving average to keep a trader on the right side of a major market trend, and this was a favorite strategy of legendary day trader, Marty Schwartz. It’s typically the first line to be lost before a trend reverses in the opposite direction.”
“I use the 10-day EMA is conjunction with the 50-day EMA as a crossover trend signal. This helps me get into trends and smooths out much of the volatility of the 10-day or 50-day as standalone signals.”
Leading growth stocks typically pullback to the 50-day EMA during bull markets. This is a common vertical price support level for strong uptrends. It’s normal for markets in an uptrend to pullback to this line and find buyers who want a stock they missed on the last run up.
“Moving averages work best in low volatility markets. The more volatile the market is, the more market participants will let emotions cloud their judgement and the less useful moving averages will be.”
70 RSI means overbought & a 30 RSI reading means oversold. The risk/reward ratio typically starts to diminish for long positions near the 70 RSI & short positions near the 30 RSI. This is true for stock indexes and big cap stocks. A 70 RSI is a good profit target for long trades
“Most good trends start with some type of momentum, either a gap in prices, a break over a longer-term moving average or a large candlestick at the beginning of a trend.”
“While trading with the 20-day EMA filter during strong trends, it’s important to use an exit strategy that maximizes profits instead of waiting for a return to the 20-day EMA. The RSI is a tool I use for exiting trades in stock indexes and big cap growth stocks.”
“The most common moving averages I use on daily charts are the 5-day EMA, 10-day EMA, 20-day EMA, 50-day EMA, 100-day SMA, 200-day SMA, and the 250-day SMA.”
Moving averages are powerful tools for quantifying the direction of price action, backtesting, technical analysis, following trends & creating large wins or small losses. Use moving averages to create a trading system that fits your own time frame, risk tolerance & return goals.
Ten key lessons from my book “The Ultimate Guide to Swing Trading”
A thread 🧵👇
“Over the long-term, holding overnight has been where the bulk of returns have historically come from in the stock market versus open to close movement.”
Overnight risk is rewarded over the long-term.
“Swing traders should focus backtesting on shorter-term moving moving averages combinations like the 5-day EMA, 10-day EMA, 20-day EMA, and 30-day EMA crossovers to capture moves in price.”
Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones by James Clear:
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“Every action you take is a vote for the type of person you wish to become. No single instance will transform your beliefs, but as the votes build up, so does the evidence of your new identity.”
“You do not rise to the level of your goals. You fall to the level of your systems.”
10 lessons from “The Psychology of Money” by Morgan Housel
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“Spending money to show people how much money you have is the fastest way to have less money.”
“Someone driving a $100,000 car might be wealthy. But the only data point you have about their wealth is that they have $100,000 less than they did before they bought the car (or $100,000 more in debt). That’s all you know about them.”
Ten lessons from my book “The Ultimate Guide to Technical Analysis”
A Thread 🧵 👇
“Technical analysis is the trading of price action, while fundamental analysis is the trading of value. These are vastly different things.”
“Technical analysis focuses only on price action & volume. The best use of TA is not the prediction of future price. It should be used to identify the path of least resistance, quantify the probabilities of what will happen next & identify a price of entry for a good R/R ratio.”
Ten lessons from my book: “The Ultimate Trading Risk Management Guide”
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“The biggest mistake you can make in risk management is finding yourself on the wrong side of a trend with a large position size, stubbornly letting it continue to run against you without exiting. If you don’t know what to do in a market the safest thing to do is to go to cash.”
“Trades must be asymmetric; the downside risk is carefully planned and managed, but the upside profits are open-ended. This is a critical part of trading success.”
10 lessons from the book: “How I Made $2,000,000 in the Stock Market” by Nicolas Darvas
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“There are no good or bad stocks, there are only rising and falling stocks.”
“I did not know it but I was already coming up against one of the great pitfalls of the small operator—the almost insoluble problem of when to enter the market.”
His answer was to entry on breakouts of momentum to the upside in stocks in uptrends.