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Why do I like the 200 days MA?

November 25, 2010

No, it’s not a quick college degree, dummy, it’s a graph. All trend estimators of best fit graphs based on a multiple regression statistical analysis are fine tools of predicting something, but let’s face it, if you read my writings seriously (few do, unfortunately) you would know that the 200-day Moving Average is the best tool in estimating a trend of a share price going up or down in the short run! Add to that my other 3 or 4 statistical or psychological variables together and we take the economic risk out of investing in stocks! I call it BLASH.

Two hundred days graphing of average daily share prices against an imaginary linear progression gives you the following possible trends for your company’s share price under consideration, (1) The price climbs, (2) The price stays the same, (3) The price drops, (4) The price curves upward, (5) The price curves downwards, and the most important, (6) The graph starts a new trend what I call the peak and the valley on the road to the money tree.

Interpretation: A curve downward with a valley beginning an upward grape is a signal to watch the stock for the possibility of buying, while a curve upward with a peak beginning s downward trend may be a sign to sell. I just looked at Apple’s 200-day moving average. The curve “shoots” upward like an arrow! You know something? I just realized that the information how to get wealthy, healthy and happy is all out there in front of us on the Internet. The only problem we have is: How do you choose the best information!!!! I call it the 10% Rule in my writings! It’s time-consuming because Mr. Information has two distinguished experts that always fight over it, the one who tells you “it works” and the one that tells you “it doesn’t work.”  Chinese psychology says that only 10% of us can tell, that is also a part of my 10% Rule! Shalom!

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2 Comments leave one →
  1. Noah permalink
    December 10, 2010 2:47 pm

    Have you looked at moving average crossovers? Do you prefer a simple moving average or an exponential moving average?

    • December 12, 2010 6:20 am

      Noach, I wish more people ask questions like you do. They are a challenge to me. I had to ponder about objectives, parameters, and what does Noach mean by exponential moving average? About moving average crossover, it’s simple. The companies I invest in have very few. I try to avoid them because they can mess up my predictions of company stability. A crossover to the positive side is welcome since I usually buy the shares before it happens. I don’t buy companies that crossover to the negative side recently unless my analysis indicates that they may soon crossover back to the positive side. That happen recently to Google when an “alarmed” analyst shouted “Sell GOOG” by mistake and a hypothetical day trader made $27,000.00 on that call! It’s in my book.

      About using exponential moving average, thanks again for bringing it up. When your goal is BLASH, using a sophisticated tech analysis is justified, in my mind, only if I do an experiment, try to prove a mathematical equation or is interested in manipulating the shape of the graph to make it linear. Do you use it in analyzing Futures and Options? For BLASH purposes a visit to basic tech analysis tables can show the uselessness of all graphic manipulations except the 200 days moving average. After you posted your comment I compared a few statistical equations that Wall street loves to my simple 200 days MA and found them all “Choppy” or “broken.” Only the 200 DMA produced a smooth curve. Since my only goal is BLASH, the smoother the upward mobility of mean daily share prices the more predictable can be the outcome from my next investment (based on the law of continuity). And, let us not forget that BLASH requires adhering to the law of parsimony too! Have a great day.

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