hi jen, [DELL AND MOVING AVERAGES]
since you had a lot of interest in the moving average via email, let's do a case study on it.
PART I
We are going to talk about moving averages. I believe they are one of the most important indicator in the study of TA. Not only are they easy to use, but also easy to plot. Furthermore, most online charting sites offer easy charting of the moving averages.
One of my favorite site for charting moving averages is this site:
cbs.marketwatch.com
Let's make sure everyone understand what moving averages are and the different types of weighting, refer to this link :
e-analytics.com
PART II
now, let's look at a dell chart.
i would suggest looking at this DELL chart:
geocities.com
it's not very cluttered, so let's use this chart as our candidate.
Open up in another window.
PART III
let's start from the left side of the chart and to the right. i will point out notable things as we move along..
first of all, there are yellow and red lines that are plotted -- 5 and 9 day ema respectively. try to just concentrate on the yellow/red lines and how price reacts to them.
let's start.
look around sept 1st in my chart.. around the CSS buy signal. let's assume we bought it there.
POINT 1: notice how the lows of DELL follow along the yellow 5 day ema! that is one of the reasons why i say that you can find entry points anywhere around the 5 day ema. again, you must know to check other indicators to make sure momentum/trend is still on your side..
Find my first CSS SELL (around sept 13). notice the low violated the 5 day ema. that was what i call a "warning shot" that momentum is weakening. but do notice that the closes are still above the 5 day ema.. just the lows are below it.
Now, find the first red bar around sept 15.
POINT 2: Notice how DELL used the 9 day ema as a "take off" point. from sept 15 - 22, DELL zooms up. the 9 day ema is another entry point I like to use. Ideally one would use the 9 day ema, but sometimes, the 5 day ema will have to do (will show you why later)
Find my 2nd CSS SELL around Sept 23. Notice that the 5 day ema (yellow) is FLAT.
POINT 3: SLOPES of moving averages are very important. up is good, flat is nah, down is bad. <g>
Look at the price action in October. Notice how DELL is FLAT while both 5 and 9 day ema are FLAT. Notice further that the CLOSING PRICES are all above the 9 day ema. they do no violate it. thus, 9 day ema is "holding up" nicely.
Look for the price bar with a CLOSE below the 9 day ema on around Oct 17. BOOM. that was a close BELOW 9 day ema. that was another warning shot.. (do know that you must always keep track of other indicators while this whole thing is going on). Do notice that the SLOPES of the moving averages are turning down. (bad)
then the October crash came. bam bam bam.. dell fell. hopefully, you had an exit plan.. Mine is an exit if 9 day ema is violated (with couple expections which i won't go into detail)
Notice when the october crash came, the SLOPES of the moving averages were down sharply..
go to next post. |
