• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint
Share this Page URL
Help

Chapter 9. Moving Average Trading Channe... > A Review of the Key Rules Associated...

A Review of the Key Rules Associated with Moving Average Trading Band Trading

Calculate and maintain moving average trading band channels that use different moving average lengths and different time frames to reflect major-, intermediate-, and short-term trends of the stock market. Set boundaries to encompass between approximately 85–90% of stock market movement.

  • As a general rule, it is safe to buy penetrations of the lower bands of moving average trading channels with the expectation that, in the not-too-distant future, the market will recover at least to your buying level and probably some what higher.

  • As a general rule, the first rally following a downward penetration of the lower boundary of the moving average trading channel stops at the moving average, which will act as resistance. If the penetration of the lower boundary has been considerable, the first rally attempt might stop at the lower boundary line.

  • Rallies that originate from the lower band of the moving average trading channel often meet resistance at the center line of the channel. If the center line of the channel is penetrated, the next area of resistance is likely to develop at the upper boundary of the trading channel.

  • If the upper band is reached and confirming indicators are positive, the first area of support will generally be no lower than the center line or area of the moving average.

  • If a market advance fails to carry prices as far above the moving average as the previous market advance, this is a sign of weakening upside momentum and possibly a weakening stock market. This pattern suggests a market downturn in the relatively near future. A reverse of this pattern during market decline suggests a forthcoming upside reversal.

  • If a market advance fails to carry to the upper band of the trading channel, the next decline will probably penetrate the center line of the channel.

  • If a market top (or market low) indicated by moving average trading channel patterns is confirmed by supporting technical indicators, the odds of a trend reversal taking place increase.

  • If a market peak fails to carry as high as a previous market peak, the odds are that the next decline will carry to a level beneath the level of the low area between the two peaks. If a market low is followed by a lower low, the odds are good that an immediate rally will not carry above the level of the rally that took place between the two lows.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint