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Strategies & Market Trends : Rolling Averages, Their ins and outs and ups and downs
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To: nasdaqian who wrote (7)12/28/1999 2:34:00 PM
From: Drygulch Dan  Read Replies (1) of 31
 
If we were talking about a reasonably sized position relative to average daily volume, then such a convergence might be cause enough to sell and a sell stop would be a good mechanical trigger.

Because I tend to concentrate not diversify, I want to know everything knowable about a stock. Moving averages are just one of many indicators that I use. I'm sure I would have been signaled in other ways long before this convergence occurred. Also sell stops are not viable protection mechanisms for a large position. My sell days have to be volume driven which are usually up days, so I have to sell early while the stock is still showing strength.

The point then is whether one is selling too early. Also one has to consider the reasons for selling. There can be many. I tend to sell incrementally as I am building a position in order to increase total ownership (by an eventual covering buy transaction) while maintaining or decreasing total cost of ownership. But for the long term trend, and with the position fully built up, the longer term moving averages tend to act as mechanical gut checks which verify that the trend is still a friend.

So I don't look for convergences. These usually come way too late, culminate in crossovers and can be associated with diminished volumes. Instead I look for the gaps to be increasing. This is the key to a good early sell. When the gaps are diverging is the point for this type of selling because its early, during a period of growing strength in the stock and increasing volumes. It also tends to be nearer the extreme maximums of the stock price.
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