Posted by forex at 6:22 AM
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1. Among many free websites that track the stock markets' moving averages are MarketWatch.com and MSN.com. Click on the drop-down menu for 'Upper Indicator,' and you be given a choice of the SMA or EMA, the exponential moving average. The EMA is a weighted average that gives more importance to the most recent data and less to the earlier days in the sample. Either moving average is fine; there has never been any conclusive proof that one is better than the other.
2. Use the 200-day moving average to determine the trend of the market. If the S&P 500 index is above the 200-day moving average, the stock market is in an uptrend and you probably want to be a buyer of stocks. If it is below the 200-day moving average, the index is is in a downtrend and you probably want to sell your stocks and stand aside until an uptrend resumes.
3. Use a cross-over system comprised of two moving averages of varying duration. This is a simple and commonly used system. For example, you can use the 9-day and 18-day moving averages, and when the 9-day crosses above the 18-day, this is a buy signal. When the 9-day crosses below the 18-day, that constitutes a sell signal. This is a short-term system that will usually keep you in trades for a few days or weeks. You can also use the 50- and 200-day moving averages for longer-term signals that will keep you in trades for a few weeks or months.
4. Use a cross-over system comprised to three moving averages. In this system, both averages of shorter duration must cross above the longest-duration average to bring out a buy signal. For example, using moving averages of 9, 18 and 27 days, the 9- and 18-day averages would have to cross above the 27-day to produce a buy. However, for a sell signal, only one shorter-duration average must penetrate an intermediate line to the downside. The 9-day crossing under the 18-day would signal a sell. This system will be less volatile and give you fewer signals in either direction.
5. Add Fundamental Analysis to your trading system. One way is to use Investors Business Daily. For a monthly fee ($20 in 2009), traders will gain access to the IBD website and the letter-grading system for stocks, with A+ being the best and E being the worst. This is based on William O Neil's proprietary system detailed in his book, 'How to Make Money In Stocks.' A grade of B+ or better on a stock constitutes a buy signal.