In many of my more technical posts I discuss moving averages and refer to them as TANKS. I feel a more detailed discussion is in order than the one provided in THE CROSSHAIRS TRADER DICTIONARY.
See also a more recent discussion about how to use moving averages as directional indicators.
SIMPLE MOVING AVERAGES ACT AS TANKS
I take a very simple approach to trading; therefore, my focus is on three moving averages for my bigger charts (WEEKLY and DAILY) and then I watch two smaller moving averages on my intraday chart. I draw my CROSSHAIRS based on the combination of the two working together (along with an indicator and the direction of the general market). I use simple moving averages instead of exponential. I do not believe one has any advantage over the other. That is it. Nothing complicated. I refer to these moving averages as TANKS because they can act as strong lines of either offense or defense, depending upon the location on the chart.
Let’s look at a recent example from the OIH (OIL SERVICES INDEX).
DAILY BATTLEGROUND CHART (TERRAIN)
This DAILY chart begins late March 2009 (within the box) and ends with today’s date (June 1, 2009).
Notice the establishment of a strong line of offense (support) within the box at the 50 and 21 TANKS. Then notice the 50 and 21 TANKS act as continued offense on April 8 and 21 as the OIH continues its strong uptrend toward the MAB (200 TANKS) which it eventually reaches on May 7. I use this general battleground chart for making my decision to enter the battlefield.
Deciding to send a soldier into battle (DEPLOY a stock), however, is made by looking for a very distinct pattern on my intraday chart (e.g., A CROSSHAIR).
So, now let’s look at my intraday chart during the same time period.
INTRADAY DEPLOYMENT CHART
On April 8 and 21 (long position) I enter the battlefield based on the following:
1) THE BATTLEFIELD TERRAIN: the DAILY chart has established a trending market along the 21/50 tanks and possible move to MAB.
2) The 21/50 TANKS act as offense and each one is represented on my intraday chart as a blue (21 TANKS) and pink (50 TANKS) horizontal line.
3) When the red line crosses the blue line (smaller moving averages) and my indicator gives me a buy signal I enter the trade as my CROSSHAIRS sets up.
The CROSSHAIRS provides a visual entry and loss exit (horizontal crosshair) with the profit target dependent upon the trader. I usually take a quick profit since I trade options.
THE CROSSHAIRS TRADER AND FORREST GUMP
Just call me a simpleton but this HAPPY ZONE works for me. By the way, another name for a simpleton is a fool but I would rather be a foolishly successful trader than a successfully foolish one. Get the idea?
I have lost way too much money over the years by complicating the simple, so I have simplified the complicated and it has made all the difference in my trading. Forrest Gump was a simpleton yet the world was his oyster (or shrimp?)! I believe Mr. Gump would be a great student of trading, chocolates and all.
And that’s all I am going to say about that!
