Posted by forex at 1:39 AM
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1. Determine the time frame most suitable for your investment objective. The widely accepted trend lengths are short-term -- five days to two weeks, intermediate -- 25 to 100 days and long-term -- more than 100 days. The shorter the time frame, the more responsive the trend. As a result, day traders will generally use moving average prices over several days as opposed to several weeks.
2. Back test the moving average of a couple of stocks within a selected time frame using a simple spreadsheet application. Input each stock's intraday high and low price for each of the past x number of days based on your timeline. Now use this information over the next couple of trading days and hypothetically 'buy' when the price breaks above the average high, or 'threshold,' and 'sell' when the price drops below the average low, or 'resistance.'
3. Adjust the trending time based upon the results of your back testing. Remember, the shorter the range, the more reflective your data is of current trends. However, shorter range means greater volatility as there are fewer days to 'smooth' out the ups and downs. A longer range better reflects actual trends, but it is not as responsive to changes and is therefore of less value to day traders.
4. Monitor your data continually, making slight adjustments. Once you've found the date range that suits your investment objectives, consistently implement your analysis, perhaps placing smaller trades initially.