Effective Method to Trade with the Trend
Ever wanted to know an established approach to monitor the trends and create the trend of this market your own friend?
Here is how you can do so:
1. Find a brief term moving average. Use 20 days simple moving average
2. Locate a longer term moving average. Use 65 days simple moving average.
Start looking for a"golden cross" to denote market trending up to purchase if the 20 days simple moving average crosses over the 65 days simple moving average. When this occurs we know the brief term average of 20 times is more powerful compared to 65 days average, indicating currently the market is trending upwards and is at power.
Conversely, start looking for a"dead cross" when the market is trending downwards to market when the 65 days simple moving average crosses over the 20 days simple moving average. When this happens, we know the brief term strength of the sector is weaker than the previous 65 days and the industry is falling off from its high rates.
While we could follow the trend this way and avoid plenty of whipsawns by taking such phases of the simple moving averages, we really do suffer the downside of a sensitive indicator. If we want to be more responsive, and are willing to undergo some whipsaws also, we can alter the moving averages to shorter length moving averages, including a crossover between a 7 day plus a 15 day simple moving average.
Trend following systems are constantly lagging, so they're always slower than what we'd like to have, and are actually confirmatory. These systems are generated and constantly sighted AFTER the market has turned.
However, when you embrace this as a trading method, over the long run, you will find you'll have the ability to monitor the trends of the markets efficiently, and will prove to be a winner in the stock markets.