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THE MARKET WHISPERER 20 9
200 period line. This is the classic definition of an uptrend.
Can the 200MA line be above both the 20MA and 50MA lines? Of
course it can. Imagine that the stock has trended up for 50 consecutive
days, meaning that both the 20MA and 50MA lines are beneath the stock
price. However, checking 51 or more days previously reveals that the stock
crashed from an extreme high, and therefore the 200MA line would be
higher than the 20MA and 50MA lines.
When to Buy?
Once you’ve identified a stock trending up and you wish to join its
continuing trend, you need to buy when the price is reversing, as we
learned in the previous chapter. The entry (buy) point needs to be on, or
fractionally above, the 20MA line, but not too far distant from that line.
When to Sell?
You sell when the stock’s closing price for two consecutive days is lower
than the 20MA line.
When to Buy or Sell within the Trading (Intraday) Session?
The same rules apply for intraday trade, except that the period you follow
is ten periods of five-minute candles, although some traders prefer only
eight periods. In actuality you will discover, as we will later learn, that your
intraday buy or sell decision will not be based only on the behavior of the
MA, but will also integrate other factors.
The Unique Significance of the 200MA
The 200MA is known as either a strong area of support or of resistance,
depending on the direction from which the stock price approaches it.
When a stock is down trending, it will find very strong support along the
200MA line. By contrast, in instances when the 200MA line is above the
stock price, the stock will find difficulty in crossing it on its trend upwards.
Even traders who prefer using the exponential moving average (EMA) will
almost always use the simple moving average (SMA) when relating to a
period of 200 timeframes.
Remember that you, too, should follow the behavior of the majority of
traders. If you choose to work with an MA that is different than what the
majority of traders use, you won’t receive the support of that majority.
