Technical ideas for preserving investment capital.
The basic question to be answered is "How do we know whether we are in a bull market or bear?"
Is there a way we can be warned of an impending market retreat?
Well surely we cannot be expected to know about impending disasters, man-made (9/11) or otherwise (Japanese earthquake).
But there are some ways you can anticipate changes in market direction or at least in risk level from a technical standpoint, IMHO.
The caveat here is that if everyone uses these signals, they will no longer work. So try to find your own ones that are not generally published...
My first line of defense is the 200 SMA vs the 144 EMA. Generally speaking, when the 144 day exponential moving average is above the 200 day simple moving average, we are in a bull market.
Another fairly good indicator is the 44 day ADX - as long as green is over red, that's a good thing for the bulls.
And finally, a look-see of the RSI can show some fairly reliable trend information which can help anticipate major turning points in the markets.
For purpose of this tutorial, I have used the cumulative A-D which is a fairly good surrogate for the markets in general. stockcharts.com
And I have provided more information in the way of trend lines, ema-sma crossovers and so forth on a chart extracted from the one above: whetherman.info
When do these indicators work and when are they useless? Well I have found when the market is making decisive changes in direction, you will see long term trend breaks, ema-sma crossovers and so forth. When the markets are moving sideways - the indicators are of less value in determining market direction.
Another useful but not necessarily decisive tool is the black ADX line at the bottom of the chart - when it is moving upwards or is at a high level, that tells you the markets are in a trend. When it is falling, that can be a clear indication that a market direction change may be coming.
The only perfect indicator is the market itself.... so if you can put together a number of technical indicators such as the ones mentioned above, you have some idea where the markets are going and are not going.
And I have left several other trend indicators in the chart for you to find....
And of course all the caveats apply.
Cheers! |
