STOCK MARKET MOVING AVERAGES AS DIRECTIONAL INDICATORS

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One of my most popular posts is about how I use moving averages as a way to increase the probability of a CROSSHAIRS trade.  Needless to say I have received several emails asking that I explain further, so here goes.

I view moving averages as possible areas of strong resistance and support (which was my focus on the previous post on this subject) but I also view these same moving averages as directional indicators.   The direction can be up, down, or sideways depending upon the way each moving average is “stacked” on my charts.  The move can last from days to weeks, and even months, depending upon the chart used (DAILY or WEEKLY). I can actually remove the candlestick chart from my platform software and be able to have a relatively good idea as to the price movement of the stock based solely on these moving averages.  This is really nothing new but the way I color code the averages and use them in conjunction with the CROSSHAIRS is what makes them unique. 

THE COLOR CODE

I look at three simple moving averages, the 200, the 50, and the 21 and they are labeled as follows:

EXAMPLE ONE:  BEARISH WHEN STACKED ABOVE THE CANDLESTICK PRICE AS SUCH AND TRENDING DOWN:

__________________________________________  BROWN = 200 TANKS

__________________________________________ PINK = 50 TANKS

__________________________________________ THIN BLUE = 21 TANKS

I look to enter trades only from the short side when the moving averages are stacked above the price chart.

 

EXAMPLE 2:  BULLISH WHEN STACKED BELOW THE CANDLESTICK PRICE AS SUCH AND TRENDING UP:

__________________________________________ THIN BLUE = 21 TANKS

__________________________________________ PINK = 50 TANKS

__________________________________________  BROWN = 200 TANKS

I look to enter trades only from the long side when the moving averages are stacked below the price chart.

EXAMPLE THREE: NEUTRAL WHEN GOING SIDEWAYS WITH NO DEFINITIVE STACK (FOR EXAMPLE):

__________________________________________  BROWN = 200 TANKS

__________________________________________ THIN BLUE = 21 TANKS

__________________________________________ PINK = 50 TANKS

I have removed the DAILY candlestick chart for the following stock.  See if you can guess the  price action over the last three months. The answer is at the end of this post.

As a general rule of thumb I do not trade stocks whose moving averages are mixed.  I do not need to since I can find other higher probability trades.  If I were to, I determine a smaller than usual profit target with a very tight stop and do not hang around very long.

I am very particular about the way I trade.  Using just a few moving averages as directional indicators helps me pay particular attention to high probability outcomes. 

The CROSSHAIRS Is designed with detailed criteria that helps me stay focused and disciplined.  Is there really any other way to trade other than through focused discipline??

THE ANSWER TO THE LAST CHART ABOVE IS EXXON (XOM), whose price has ranged from a high of 74 to a low of 64 over the last six months and is now sitting at the top of the range again.

 

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