To Each His Own

TradingMarkets is a source of a lot of trading ideas. Here's one that was published this morning in Yahoo Finance. The premise of the article is that you should wait at least 15 minutes after the opening before day trading and that is always a good idea. Now I don't think I would just willy-nilly throw money at a stock as is suggested but if after the first 15 minutes it was bouncing off the S1 or S2 I might take a shot at it - as readers of this log well know and I would probably make some good coin - which you also know.

The one thing however that these guys insist on is that you always trade stocks above the 200 MA. I say that is an interesting idea but not necessarily appropriate to the current market - in other words - bullsnot.

In a recent article (not the one cited above) they describe a 5 day down system where you bought the sixth day after 5 lower lows in a row. We looked at similar methods many years ago and in fact wrote about a couple here in this BLog last year - they don't test very high so I've sort of rejected the whole idea. But TradingMarkets goes on to say (as they always do) to only use this method when the close is above the 200 MA. I say only use it when the close is below the 200 MA. Who's right - who's wrong - two men enter Thunderdome and only one leaves ....

Unlike TradingMarkets who uses a hundred years of data to prove their contention I use only 80 days. The fact that my 80 days just happened and their hundred years happened - oh a hundred years ago must have some bearing on the results of my tests because -

Greater Than MA 200 = 53% win rating, .89 reward/risk, -9.73% ROI
Less than MA 200 = 56% win rating, 1.96 reward/risk, 85.92% ROI

I win. That's significant and case closed. The reason why stocks below the MA 200 do so well is because all stocks that are trading above their MA 200 now once traded below their MA 200. This absolutely incontrovertible fact leads me to think that somebody, somebody really, really, really smart, must have bought them below their MA 200 or they wouldn't be trading above the MA 200 today.

So it's up to you - the TradingMarkets way (above MA 200) or the really, really, really smart way (below MA 200) - your choice.

EMA 140

Shay, a reader who uses stockfetcher, gave me some filter code in the comments and I put it in the old mix master and popped out some selections. It is based on Granville's on-balance volume and while it doesn't test very well in the short term (4 days or less) it tests excellent in the 20 to 30 day range - outputting 6.00+% net change values. Those are exceptional numbers and I'll put the filter in at the end of the post for those of you who might be interested.

But what caught my attention was one of the lines in this filter -

EMA(140) has been increasing for the last 5 days

I had never worked with the EMA 140 before and when I put it on a long term chart along with the MA 200 I saw right away that EMA 140 conforms to daily values much better than the MA 200. MA 200 is an antiquated concept and absolutely no one knows why it was ever used but it just hangs on and hangs on. Well I'll explain it to you and you will then know more than 99% of all the traders in the world - the value "200" was selected for the simple fact that it describes one year of trading. There are 200 trading days in the normal year (52 weeks times 5 = 210 - 10 bank holidays = 200). In leap year you get 201 of course but no one feels compelled to make that adjustment. And MA 200 made sense back in the old "buy and hold" forever days of playing the market because if your stock or stocks were dipping below the MA 200 there were deep problems with it and you wanted out.

But the EMA 140 makes better sense today because it absolutely describes the support/resistance of a stock's daily pricing. Here is a picture with the EMA 140 and the MA 200 -


(Edit - this is an update of the original where I had the EMA 120 vice 140.)
It is easy to see how the EMA 140 "belongs" with the stock where the MA 200 is aloof and disconnected. My take is simple - I'm putting EMA 140 on my charts when appropriate (daily values) and I think we can put the MA 200 to rest at last.

And as an oh by the way - I don't normally recommend "cheap stocks" but this one, ALTH, might be going places (at least another 50 cents to a buck). Here is the pivot point chart -


These drug manufacturers are always difficult to buy but it seems to be holding a line here and the pivot point suggests that it might try to break out so who knows - it might get a buck in the next month or so.

So here's Shay's filter - as I said I like it for its long term potential - I'll have to examine On-balance volume and see what makes it tick. Thanks Shay -

show stocks where ema(140) has been increasing for the last 5 days
and ma(33) has been increasing for the last 5 days
and close is between 20 and 0.7
and average volume(10) > 20000
and ema(20) is above ma(33)
and add column Market
and obv(1) reached a new 6 months high
and volume > 20000
and add column average volume(10)
and sort column 6 ascending