Mark,
I use the following dMAs as my long term MAs: 200, 100, 50
Intermediate term: 34, 21
Short term: 5, 8, 13
Ideally, during an uptrend, you want all MAs "in alignment" meaning the 100 line is above the 200 line, the 50 line is above the 100 line, etc. Additionally, you want price to be as near to those lines as possible, but usually in an uptrend price won't drop below it's 50 dMA that much.
Important as well is noting the TREND of these dMA lines -- are they moving down or up? A stock that moves up for a few days (even a lot!) but is a complete mess with all of its MA lines (not in alignment, not also in a general uptrend) is going to be less stable at holding those recent gains.
When lines bunch up and tighten, that means a stock has been basing for a while and once it breaks out, you will see the lines spread apart. If it breaks up above the lines, you would probably see this proper alignment take place.
I like to use the 50 dmA as the first caution line, and then the 200dMA as the danger line when stocks are coming off an uptrend.
The 5,8,13 lines are better to watch for short term moves. These bunch up and spread out more frequently.
One of the best things to start working on for Basic TA is basic charting -- start trying to draw trendlines that connect the lowest lows for different time frames. It's important to use the LOW and not the CLOSE for your trendlines since when a stock breaks a trendline, even if intraday and ends up closing above it, it's significant.
It's good to look at charts from many different time frames -- try backing out and looking at a weekly chart, as well as at least 2 years ideally 5 years of data to determine how this stock moves in the bigger picture. Try putting both a long term trendline (at least a year old preferably, but 6 months could do) and a shorter trendline down. The long line would be a primary trendline to watch. The longer the trendline, the more important it is and the more serious it is when it is broken, even intraday.
Hope some of this helps!
-dave |
