So you just played the greatest fool by chasing a stock higher. Right after you bought, the stock took a dive and you stopped out for a 12% loss.
You knew you shouldn’t have chased the stock.
But how did other traders out trade you? What were THEY looking at that YOU weren’t that told them to sell and take profits?
Too many traders forget about the EMA because of the many flashy technical indicators now at their finger tips. Yet trading the moving average is one of the oldest and most accurate ways to trade.
The most important message of a moving average is the direction of its slope. When the EMA rises, it shows that the crowd is becoming more optimistic and bullish, which is a good time to be long. When
it falls, it shows that the crowd is becoming more pessimistic and bearish. It is a good time to be short.
When a moving average points up, go long. When a moving average points down, go short. As a trader, you have three options: go long, go short, or move to the sidelines.
When a moving average turns up, don’t short. When a moving average turns down, don’t go long.
When an EMA starts jerking up and down, it’s a trendless market so move to the sidelines.
Enter a long position near the rising MA. Enter a short position near the falling MA.
How do you not become the greatest fool by chasing a stock higher right before it reverses?
Most uptrends have retracements. When a stock retraces to the EMA, buy. Place a stop slightly below the EMA. If the rally resumes, you will make money. If the market turns against you, the loss will be small.
Buying near the EMA will help super charge your gain while minimizing your risk.
I hope this article helps you make a lot of money. Leave any comments you might have below. Thank you and happy improved trading.
Lance Jepsen
President, GuerillaStockTrading.com
Your Trading Coach
(because everyone, even Tiger Woods, needs a coach)
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