Trading stocks on the 50 day moving average
February 1st, 2007 by KenricNow, I’ve simplified my stock trading down to using the 50 day moving average. There are many strategies with moving averages but since stocks is not my thing, I prefer to use a simple strategy. The strategy is pretty simple. You buy when the stock moves above its 50-day moving average and sell when it drops below. Follow it religiously. You may incur many trading commissions, but at $8 a day it’s no longer a big deal. (Rant and sounding old) I remember the back when it cost $100 to make a trade and you had to do it by phone! and I had to walk 10 miles in snow to get to school.
I haven’t been following many stocks, but some of you many have noticed a new page called Trading tech stocks. This page is simply a one month chart with a 50 and 200 day moving average. I just have Google and Apple on this page.
The reason I post this information today is because Google moved below its 50 day moving average yesterday. So according to my strategy I would sell Google and tomorrow’s open which as of this writing is $483.00. I don’t own Google right now, but I just wanted to put this strategy out there and track its results.
Posted in Finances | 6 Comments »
Stumble it!
Kenric – interesting piece. This could work for the everyday investor who doesn’t have much time to monitor their positions. I backtested your strategy on GOOG. This strategy creates 20 trades. Makes 95% (83% comes from 2 trades in 2005); 40% of trades are profitable; sits through a 34% drawdown. My personal thought is this only works on GOOG because it has had such a strong upward bias since IPO.
By John Anthony on Feb 8, 2007
As an update, looks like what tests better on the GOOG is to buy at the 50 day MA and sell at the 25 day MA. You make more money, lower drawdown, and fewer trades.
By John Anthony on Feb 8, 2007
Thanks John for the research. I’m going to look at what you suggested.
I understand your point about GOOG. I only follow a few stocks anyway using this. Can you try it on Apple and Ebay? I wonder if Ebay will show a winning strategy.
By Kenric on Feb 9, 2007
I like the crossing of the 50 period moving average. I combine this with an RSI (21) rising above 50. Try combining this strategy. I learned it from ADXcellance, a great book on ADX and DMI.
Ron
By Ron Rice, PHD on Mar 1, 2007
The cost to trade at times could really be very high. But i like the information you provided on your blog. Great info and incisive as well
By trading stock for dummies on Sep 20, 2008
I happened to Google to this page inadvertently, but thought I might offer some additional considerations:
What a stock ends up sustainably doing as it tests its 50-day MA has to do with so many other factors that this indicator really ought to be used only in conjunction with some other tests. For example, if you’re wanting to be really quick in analysis, at least consider also the 200-day MA (for longer-term expectations) and the 20-day MA (for shorter-term expectations)… and see where the 50-day MA fits within those shorter- and longer-frame perspectives. Including even just those two technical factors (the 20-day MA and 200-day MA) will greatly increase the interpretation value — and it takes just a few seconds longer as compared with just looking at the 50-day MA. Those few additional seconds are worth much more than the time spent.
Of course, it’s valuable to take even some more minutes/seconds to do the same thing with observing those same MAs on the major indices (DJIA, COMP, SPX, RUT)… in addition to forming an overall impression of the prevailing market sentiment of the moment/period by reading even just a few top headlines from the major market news sources. All this could be done in literally less than a minute or two in some cases (if you set up your web browser bookmarks appropriately), and will give you way, way more value and safety than just looking at a single MA.
On top of all that, of course, is to bear in mind the need to start with a quality stock from a fundamental perspective too.
By S. N. Sansalone on Nov 19, 2008