Predicting an Unpredictable Stock Market

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For those who are new to simply stocks and options, Welcome! and existing friends, welcome back.

I will like you to read the post to the end because  the previous trading sessions of trading reflects unstable times and I will like to give you confidence as you trade in these times.

Let me jump into moving averages (MA) in this time of uncertainty. Markets are up 500 points, down 500 points, up 1000 points and down 1000 points. For many trader who have subscribed to Simply Stocks and Options you know we do not trade fundamentals, we trade with technical analysis which is a time tested trend principle method of trading the market.

In times of turbulence, the technical analysis tools tell us what to do, we are ahead of the volatility by using the tools especially in these times.

Moving Averages is the trend’s best friend forever as they are used to smooth out the trend and make it easier to see the big picture by making bare the predominant and current trend. The moving average can be used as a short cut in identifying the trend.

10 period moving average is the Green line colour, Yellow line colour is 20-period moving average and the red line colour is 50-period moving average.

You can set up your moving averages from the indicator settings in the same way as I have done above.

As the trend is moving up and down the line smoothens the trend by moving behind to smooth out the process. Few traders use solely the moving averages to trade.

The above are called Exponential Moving Averages (EMA) which I usually use in trading and set at the 10, 20, and 50 period EMA to identify short or intermediate term trends.

Some traders use the Simple Moving Averages (SMA) but they can be useful in long term trends and do not react as quick as the Exponential Moving Averages. All three EMAs can be used at the same time on the chart and used together.

The signs predicted by the EMAs are different hence why it is used together.

How to Use EMAs

Let me illustrate here that EMAs can be used for trend direction, as a Buy or Sell signal and as a support and Resistance which we discussed in a previous post and can be found here. It is as simple as mentioned.

For the trend direction, simply ask yourself if you are above or below the moving averages.

When the candlesticks are above the moving averages it means the trade is in a bullish trend (area of chart painted green), when the candlesticks are below the moving averages it means the trade is in a bearish trend (area of the chart painted red) and when the candlesticks are stuck in the middle or on the moving averages it is a neutral trade or called a sideways market (areas painted white).

 

Do you notice the crosses of the moving averages in the trade chart below?

When the moving averages crosses it depicts an opportunity, ideally all 3 moving averages crossing tells the trend is reversing and this is either a buy or sell signal.

A moving average crossing upwards signals a bullish trend and when moving averages cross downwards signals a bearish trend.

It is useful for a support and resistance when the candlestick trades up the moving averages is a resistance and down to moving averages is a support.

The EMAs can be used to trade fully without any other tool.

Examples of Moving Averages

APPLE – AAPL

Quite a piece of work when sharing my screen images, kindly zoom in to view properly if you are having difficulties seeing it or click to enlarge.

See the Apple stock, at point number 1,  moving averages crosses the 50 period downwards and the trend becomes bearish. If you trade the trend by going bearish to exit at point number 2 when the lines cross again, see the trend goes bullish and you can ride it all the way up to point number 3 in October 2018.

Point number 3 the line cross and the trend goes bearish which indicates the currently bearish trend. See it now? Let us do one more example for clarity.

AMAZON – AMZN

Click here to enlarge image

Point number 1 on the Amazon chart depicts candlesticks on the moving averages and you just got it right it is a sideways or neutral market. I clearly would not trade in such trends or preferably you can use Stochastic indicators.

At point number 2 notice the moving averages crossing upwards, that is a  bullish trend reversal, notice the bullish run from point 2 to point 3 and point 4. At point number 4, the moving averages cross downwards which is also a trend reversal and currently AMZN is trading bearish since moving averages cross at point 4.

Do you want to check out more examples?  Can you to check out the two stocks as a personal practise sessions; SPDR S&P 500 Trust ETF – SPY and BOEING – BA.

You can use the charting tool for free here to practise. Drop me a comment below to help me know how you get on.

KITS

KITS is my acronym for Keep it Trade Simple. I have seen many Traders paste too many confusing indicators on the chart, loads of lines and it all becomes confusing. When you Keep it Trade Simple you cannot get it massively wrong.

How do you KITS? Play all your trade using a trade journal with a simple process I have used, simply analyse your trade, then chose a strategy, write down the plan such as your entry point, stop loss and a target; then measure against your plan – did you follow the plan or did your emotions get in the way and do I make any adjustment.

Let me send you my KITS trade journal. All you need to do is drop me a comment and subscribe, I will send you my KITS trade journal.

Next steps

I know the trading sessions have not been looking good and you may have lost some money but remember, they are all opportunities to enter into the market awaiting the next bullish or bearish run.

Trade the trend because the best days are still ahead

Let us stay calm and be prepared. Don’t forget to drop me a comment and subscribe for my KITS trade journal.

See you soon.

5 Replies to “Predicting an Unpredictable Stock Market”

  1. You have an optimistic attitude and this is quite important when investing in stock I think.

    I like your KITS trade journal and the idea behind it but I’m still a bit worried if the time is right at the moment to start investing.

    I will follow your news first, i’d like to see some real time changes. If things go the way as Cryptocurrency does we could see some hard times ahead.

  2. Thank you for your tips and explanations of different trend patterns. The markets have been prettycrazy and I have not been doing so well. I definitely need to educate myself better by reading posts like yours so that hopefully I can start to make some better call and get my money back

  3. Like you, I had some trouble in the markets the first few years I was involved.  I embarked on extensive study and purchased quite a bit of advice and tips.  I have learned a lot, but not yet gotten rich.  I’m still continuing my education and trading every day, as I have since December of 2000.

    Your technical explanations look insightful and sound.  It looks like you are posting weekly.  I’ll continue to check out your posts and see if I can improve my approach.

    Thanks a lot.

  4. This is actually a topic that I was looking forward to researching. I’m reading the Intelligent Investor now, but I would like to know more about technical analysis also because I’ve noticed some valid points here. Great post! I look forward to your future posts.

  5. I was searching all over internet about predicting stock markets and found this website. It is very informative.

    I am still scratching the surface out of it. I need to learn more.

    Thank you for this valuable post.

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