USE OF MOVING AVERAGES TO TRIGGER A SELL

15th Aug '21 by SCI20

13 comments 1014 reads

After the significant fall in the SP of Best Of The Best on Friday I wanted to understand how MAs are used by you all in determining a decision to sell.

GaryC posted this on Friday : Moving Averages - 10, 20, 50 (the most important one), 100, 200. Tells you all you want to know. I'm coming to the view that if falls 10% I've not caught momentum and dump.

1. Which of the averages do you use- 10,20,50,100 or 200 to trigger a sell?

2. How far below your chosen MA does the SP have to fall to trigger a sell?

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About the Author

SCI20

Premium Member

13 comments

Snowbum

15th Aug '21

Normally people using MA's wait for a crossover, but taken on it's own it may generate a false signal. Look for more than one confluence imo. Suggest that you have a look at the chart i posted in the SCVR retrospectively analysing the chart of Best Of The Best (LON:BOTB) . There were other significant signals too. Use of fibonaccci levels can also be very useful.

I no longer favour use of fundamental or technical analysis in isolation, a combination of both seems to be the sweet spot imo.

For MA's on a strong trend i look at the 5, 8 and 21 periods. 5, 8 crossover is danger, below the 21 is sell, so not unlike what Wilkonz describes, however i don't use them in isolation.

William K

15th Aug '21

If the share price falls below the 30 week (150 day) MA, I normally sell at once. Sometimes I wait for the price to fall below the 40 week (200 day) MA. These values are for medium to long term trades. For shorter term trades, I would use a lower moving average. If you're fortunate enough to have a winner on a parabola, it can make sense to sell when the price dips below the 10 day or 20 day moving average.

Will S

15th Aug '21

O'Neil advocated the 100 MA and others use the 200 MA. The issue with the 50 MA it it can give a lot of exit signals on an uptrend during a consolidation. The 100 MA seems a better bet to me because an uptrending stock will typically bounced of the shorter MA, then the intermediate MA (50 EMA is mine) then off the 100 MA and / or 200 MA before the uptrend loses steam. If you look at the daily chart for BOTB you can see that happening before the cross of the 100 MA on the 18th May. NCYT has a similar chart and is further on so maybe that will give some clues.

I read Brian Shannon's book "Technical Analysis Using Multiple Timeframes" and found the entry and exits chapter pretty enlightening. But ultimately it mainly comes down to your aims and time horizon. If you read 100 Baggers it advocates never selling unless the investment thesis completely changes. In that case you need to make a decision from the BOTB RNS whether this is a temporary or long term issue. I never invested in BOTB so don't have an opinion either way.

Breakout Trader

15th Aug '21

it’s quite difficult to pick a single moving average, and have and absolute black-and-white rule about selling once the sp moves below it.

Easy in theory, but surprisingly difficult to stick to.

Having said that, for shorter term swing trades, my key average is the 21ema on the daily. Short term trends tend to stay above it, and often bounce off it.

For longer term holds, over months, the 10 period sma on the weekly is useful. This is roughly aligned to the 50sma on the daily, and gives price space to move up and down within its trend.

With any moving average strategy, I would advise working on identifying optimal entry points for trades - ideally where your stop loss, from the beginning, can be placed below the average you intend to follow.

And finally, I would include a rule that the trade will be closed if the candle (daily / weekly / other) CLOSES below the average. You will see price often dips below a key average, but closes above it and the trend will recover.

All IMO.

Snowbum

15th Aug '21

To illustrate my point wrt to fibonacci levels, look where BOTB found support...

https://www.tradingview.com/x/...

Logical David

15th Aug '21

Some long term investers decide to sell when the 50day MA falls below the 200day MA.

Harry Hindsight

16th Aug '21

Jarvis Securities (LON:JIM)

The 25, 50, 100 and 200 are trending up so no panic - trend is the friend. The 25 gets experimented with so may go to 21 or keep it simple 20.

This could be a 'flag' or 'pennant' so a brief pullback before continuing. Momentum is in the Green and rising so a tailwind. Volume is there.

Resistance is 350p IMO (nice round number) and see Support at again a nice round number 300p which is also around the 50ma - so thats when I will have to make a decision and review the news/fundamentals.

Will be on the watch tomorrow for a buying op and also for Ferrexpo (LON:FXPO) which I won't be selling but looking to top up.

Mostly I have to sell so can invest in something else. When I have enough wealth then maybe can afford to let them sit in a coffee can - but I think they still should be monitored, not daily but at least regularly or set ALERTS, a brilliant system in Stocko.

SCI20

16th Aug '21

Thanks to everyone who has replied.

As a medium to long term investor and with a number of my best performers retracing by 10%-20% I wanted to establish a more structured approach to whether to sell or top slice. As has been discussed recently the stock ranks have served me well in the bull market but with weaknesses showing in some sectors I wanted a more immediate sign that a SP is trending down.

I have set an ALERT Price vs MA %130d. Not sure if this is enough.

Best of Best was a very small punt for me but Ferrexpo is a much larger holding and it very much highlights my predicament. The SP is now 21% below its high, has just triggered my MA alert and yet still has a SR of 99. Like GarryC I believe this to be a buying opportunity but if I adhere strictly to the alert I should sell.

CamRaid

17th Aug '21

I like the MACR as an indicator to buy and sell.

Harry Hindsight

17th Aug '21

As I was saying the 'trend is your friend' until it falls off a cliff lol. $PTSI StockRank 97.

GUYUKTRADER

18th Aug '21

2/1 Stock split 16th August - still a nice momentum play

Using moving averages in its different guises is a very useful tool - I use them including ATR as selling indicators

Derrick357

13th Sep '21

Interesting that you use ATR as selling indicators. I've investigated ATR trailing stops and if I understood correctly a rising price crossing the green line is a Buy signal and a falling price crossing the red line is a Sell signal.

But can it really be that simple?

CamRaid

13th Sep '21

I like the MACD.

Some shares follow this indicator very well.

Volex is a good example. Put the MACD on the chart.

If you had bought when the blue line goes above the red and sold when the blue goes below the red, would you have made money?

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USE OF MOVING AVERAGES TO TRIGGER A SELL

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SCI20

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