When we first learn how to trade stocks, most new traders are overwhelmed with too many “super-secret” indicators.
By comparison, this one tip, though simple, will improve your trading immensely. Hint: it doesn’t require “super-secret” indicators or expensive classes. You just need to train yourself to look at price action and stop using your opinion to trade.
Ask yourself this two part question before you consider your next trade.
Where is price relative to the moving averages? And, is there a visible slope to the exponential moving averages? It’s that simple, so I just saved you tuition in expensive stock trading lessons and you didn’t have to program a super-secret indicator.
Simplicity should not be confused with effectiveness.
We like to use the 9/20ema as we trade “LIVE” everyday with members. We will look at a reference chart, commenting on price action and the 9/20ema. We look for price above the 9/20ema if we are bullish or below the 9/20ema if we are bearish.
This “super-secret” strategy works on all time frames.
The second thing we look for is a slope greater than 30° ~ 45°. With price above the moving averages and a slope of 30° or more, probabilities suggest pullbacks to the 9/20ema will support price. Once a pullback occurs, we then look for “buyers” and a bullish continuation candle for confirmation that the trend is still intact.
It doesn’t matter if we are looking at the 5 min, 60 min, daily or weekly time frame. The concept is the same, no matter the time frame. It is effective and repeatable as a strategy, therefore is creates consistency in our trading.
Let’s look at an example of this “super-secret” indicator in action. Yes, I’m being sarcastic.
Bank stocks are bullish, as growth stocks appear to be losing favor. We talked about the apparent shift from growth to value stocks in the trading room, during the trading day.
“Livestream” broadcasts 9:00am – 4:00pm.
Wells Fargo (WFC) price action moved above the 9/20ema back in November, at “Point A”. Volume was above average. This told us institutions were active in the stock. At the same time, RSI was rising and MACD moved above its signal line. We noted the slope in the exponential moving averages was bullish and greater than 45°. We anticipated pullbacks would be bought, as we see at “Point B”. Confirmation of the trend continuation comes the next day, with a bullish follow though. This is important. We must see a follow through day. Without this rule, there is no confirmation and price is susceptible to failure.
Additionally, once we see topping candles, price begins to falter shortly thereafter. A close below the 9ema sometimes leads to a close below the 20ema, “Point C”. Note the slope of the moving averages flattens out. There is no edge at this point. We need to see a slope. In February, price moves back above the 9/20ema and the slope begins to angle upwards. While the slope is less than 45°, it does give us an edge to the long side.
At “Point E” price drops quickly below the 9/20ema. This is your stop. The trade is over.
As long as price is below the 9/20ema, we anticipate rejection as price rises to meet these overhead moving averages. Once price moves back above, as we see on Thursday and Friday, we can assume “follow through” days are imminent.
Financials are strong. Focus on XLF.
As we can see the financial sector (XLF) is strong. Therefore, the banking industry group should be strong too. If financials are strong we have a catalyst to help propel our candidate..
Indices > Sectors > Industry Groups > Stocks
Finally, using a top down approach adds to our success. If the major market indices (SPX,NDX,IWM) are strong, it follows that the sectors and industry groups should also be strong. If stocks in the sector and industry group are working in a similar fashion, this supports our winning stock pick.
For a video explanation of this strategy, check out the previous released “super-secret” video here.
Remember, to be successful requires us to observe. If we know what to look for, we don’t need expensive “super secret” indicators or costly trading classes. Join us and trade “LIVE” during market hours to see for yourself.