dennis mccain
  • Home
  • Investing
    • Best Ideas
    • New Highs
    • Dividend Increases
    • Dividend Kings
    • Div Aristocrats
    • Div Champions
    • Business Dev Cos
    • Monthly Dividends
  • Options
    • Weekly Options
  • Photography
    • Photography Gear
    • Hiking Trails
  • Biography
  • Index
  • Contact Me

Investing

Ideas and Strategies on Investing.

Previous Articles

Buying with the Trend

2/9/2015

0 Comments

 
Stock investing for me is finding a company that pays a growing dividend and then buying the stock of that company as it's moving up in value. In order to do that I need to identify whether a stock is trending up, down or sideways and that means studying the price charts. 

When I’m looking at stock charts with several indicators displayed, one of the indicators I like to see multiple (3) moving averages (MA). Generally my favorite moving averages are the 5, 10 and 20 period moving averages. On a daily chart that would be 5 days, 10 days and 20 days. On a weekly chart that would be 25 days (5 weeks), 50 days (10 weeks), and 100 days (20 weeks). I prefer this orderliness of having the 10 period twice as long as the 5 period, and the 20 period twice as long as the 10 period. It seems balanced and proportional to me and I like how the relationships between these moving averages develop over time. Fortunately the Bollinger Bands includes the 20 period moving average, so by using Bollinger Bands I get both the 20 period moving average as well as the bands themselves.

In a strong up market I’d ideally like to see the stock price above the 5 period MA which would be above the 10 period MA which would be above the 20 period MA. In a strong down market I would like to see just the opposite type of movement. Unfortunately this rarely happens this neatly and the price and the MAs are often in some phase of total disarray. The key is to figure out whether this is simply the volatility of the marketplace, the less than desirable strength/weakness of the underlying equity, or the fact that the equity may be moving from a period of trending into an area of consolidation. This is often not an easy thing to determine.

Picture

Being a chart reader rather than a price predictor, I tend to let trends (whether up, down, or sideways) develop on their own first before I make a decision or take a position on whether it’s trending or consolidating. As a result, I get into most of my trades late on purpose. I don’t have a problem with this strategy because I’d rather be late than wrong.

One of my favorite entry points is after a stock’s price has moved down and all of the above three MAs have moved down in the right order along with it. I usually find these situations while looking at charts for an MACDs that are below zero, an MACD Histogram that is moving upward, and an MACD that is about to cross its signal line. When I see this occurring, I look at the stock chart to see if the stock’s price and MAs are doing what is expected of them.

As the MACD Histogram crosses zero and the MACD crosses the signal line I expect to see the price surge through the three MAs. As the price pierces those averages they will begin to twist and turn on each other and hopefully reverse their order completely. As the price moves up I simply hold on for the ride while watching the MACD and the relationship of the three MAs as they interact with each other. (I use just the opposite information to determine exit points).


  “If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it's coming in, it'll never happen. The market is always right.”   
---  Sunny J Harris, Author and Professional Trader.

Two other indicators I usually like to plot along with the ones above are the ADX and the RSI. I use the ADX to let me know the strength of the movement and whether the pressure is coming from the buying or the selling side. I use the RSI to provide me with a heads up on whether the stock is being overbought or oversold. I use these two indicators as confirmation of the first two indications identified above (the MACD and the MA Crossover), and I use the two above as confirmation of the price movement of the stock. Sounds simple, right?

When everything above is moving in the same direction (up, down, or sideways) I invest appropriately. My investing philosophy is based upon probabilities and trends. If a stock price is moving in a direction that is confirmed by all of the indicators above (whether up, down, or sideways) then that stock is moving in a trend. Probability says that the trend will most likely continue for some time. In fact, as dumb as this sounds, the trend will continue until it doesn’t. And I will stay in sync with that trend until the trend changes. If it’s trending up I want to be long. If it’s trending down I want to be short. If it’s trending sideways I want to maintain my position (in or out) until I can determine whether an uptrend or downtrend is being established. When the chart tells me things have changed then I change also to remain in sync with the market.

Here's the reason. Being in sync with the market is how an investor makes money. Being out of sync with the market is how an investor loses money. For me, making money is what investing is all about.


Picture
0 Comments



Leave a Reply.

    Print Friendly Version of this pagePrint Get a PDF version of this webpagePDF

    Picture

    Author

    I am an Individual Investor with specific interest in long term growth and then enhancing my returns with income from dividends and derivatives. I don't recommend stocks to anyone (it's a good way to lose friends) and no one reading this should misinterpret my blog as a recommendation for any type of investment. I am writing this solely for myself and my kids.


    RSS Feed


    Picture
    Top 100 Blogs for Dividend Investors

    Picture
    Follow Me on StockTwits!



    Dividend Growth Stocks
    Dividend Growth Investor


    Picture
    I'm on Seeking Alpha too!

    Archives

    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013


    ADDITIONAL RESOURCES:
    4 Month INDU Chart
    Dividend Ex-Dates
    Bidness Etc
    SharpCharts Voyeur
    StockCharts.com

    FINVIZ
    Seeking Alpha
    BDC Reporter
    Roadmap2Retire
    DivHut
    Dividend Growth Investor

    Dividend Yield

    Stock Market Mentor
    Chart Swing Trader
    Dividend Announcements
    IBD TV
    Stocks to Watch Today
    Dividend Detective

    DISCLAIMER
     I am not a licensed investment adviser, and I am not providing investment advise for you on this site. Please consult with an investment professional before you invest your money. Any opinion expressed here should not be treated as investment advice. I am not liable for any losses suffered by any party because of data or information published on this blog. Past performance is not a guarantee of future performance. Unless your investments are FDIC insured, they may decline in value.

    Picture
Powered by Create your own unique website with customizable templates.