This shows you the differences between two versions of the page.
| Both sides previous revision Previous revision | Next revision Both sides next revision | ||
|
trading_strategies:percent_above_moving [2023/09/28 20:42] jayanthi [Introduction] |
trading_strategies:percent_above_moving [2023/09/28 20:43] jayanthi [Strategy] |
||
|---|---|---|---|
| Line 10: | Line 10: | ||
| - | ===== Strategy ===== | + | ===== How To Use the Percent Above 50-Day SMA Indicator ===== |
| - | As the chart below shows, the raw data for this indicator can be quite volatile, with frequent crosses above/below the 50% line. In general, the bulls have the trading edge when the indicator is above 50% and the bears have the edge when it is below 50%. | + | As the chart below shows, the raw data for this indicator can be quite volatile, with frequent crosses above/below the 50% line. In general, the bulls have the trading edge when the indicator is above 50%, and the bears have the edge when it is below 50%. |
| {{:trading_strategies:percent_above_moving:ts-pa50d-01-spx.png|Chart 1 - Trading Strategy: Percent above 50-day SMA }} | {{:trading_strategies:percent_above_moving:ts-pa50d-01-spx.png|Chart 1 - Trading Strategy: Percent above 50-day SMA }} | ||
| - | The raw data is too choppy for an effective system. Therefore, chartists can use moving averages to smooth the data and reduce volatility. A long moving average can be used to set the overall tone, bullish or bearish. A short moving average can then be used to identify overbought or oversold levels. There are three steps to developing this system with two moving averages. | + | The raw data is too choppy for an effective system. Therefore, chartists can use moving averages to smooth the data and reduce volatility. A long moving average can set the overall tone, bullish or bearish. A short moving average can then be used to identify overbought or oversold levels. There are three steps to developing this system with two moving averages. |
| **1. Define the market tone with a long-term moving average.** Smoothing the indicator with a 150-day EMA will greatly reduce volatility and allow chartists to establish a general tone for the S&P 500. Even though a move above 50% is technically bullish and a move below 50% bearish, whipsaws can be reduced by using buffers for bullish and bearish thresholds. Therefore, a move above 52.5% is deemed bullish until countered with a move below 47.5%. Conversely, a move below 47.5% is deemed bearish until countered with a move above 52.5%. | **1. Define the market tone with a long-term moving average.** Smoothing the indicator with a 150-day EMA will greatly reduce volatility and allow chartists to establish a general tone for the S&P 500. Even though a move above 50% is technically bullish and a move below 50% bearish, whipsaws can be reduced by using buffers for bullish and bearish thresholds. Therefore, a move above 52.5% is deemed bullish until countered with a move below 47.5%. Conversely, a move below 47.5% is deemed bearish until countered with a move above 52.5%. | ||