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Thursday, April 3, 2008

Charting 101: How to Use Trends - Weighted Moving Averages

Challenge Accounts:

Investing Account Balance: $241.92

Stock / Futures Trading Balance: $734.39
Online Savings Balance: $22.10

Personal Trading Thoughts: Cash. No positions. Wow. Didn't see that coming. I had no swing positions, so nothing lost due to my outlook. But wow. Nearly 400 points on the DOW on Monday.

Personal Investing Thoughts: Cash is my largest position. I still hold all of my long term stocks. My bearish outlook hasn't gone away. But there is another possibility. We could 'channel' for a while. In other words, a short-term bottom might be developing, as the market goes sideways for a while. I'm still prepared for a 35% drawdown from the highs. But at the same time, I have an itch to expand the investment portfolio. I might. I say again, might purchase some DTE for a long term DRIP play. If I did, it would be just a nibble, not any massive purchase. I maintain that if the recession is a short one (1 year) then the bottom could come any time as the market will be the first one out of the recession. If the recession is longer (2 years) then we haven't seen the bottom yet. I leave the predicting to God. I might take a nibble soon, but that's all it would be. A nibble. Cash would remain my largest position.

Ok, let's return to discussing basic charts. In the last video I had regarding charts, we discussed how simple moving averages are constructed. We also mentioned a problem with simple moving averages. They tend to lag. Why? What do I mean? How can we work to eliminate this problem? By 'weighting' in the average. I discuss these points in the following video:

Tomorrow I'll discuss using your moving averages together.

* * *

Investing Account Balance: $241.92
Stock / Futures Trading Balance: $734.39
Online Savings Balance: $22.10

Total Trades and Investments: 3
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 2
Average Drawdown: $82.56
Average Loss: $82.56
Accuracy Rate: 33%
Average Reward: $179.75
Risk : Reward Ratio: 1 : 2.02

This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research and tolerance for risk.

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