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The Magical 50 Day Line
So, all of your stock picking schemes trying to trade stock have ended in shambles. You have no idea when to buy and when to sell. The stockmarket is up but your way down. We need to get down to the basics of the stockmarket and how to pick a good stock.
The best way to help you to buy a stock is to see patterns and this involves using charts. One of the most basic tools on a chart is its 10 week line or also known as the 50 day moving average. The line is calculated by taking the last 50 days of the stocks closing prices adding them up and dividing buy 50. Bingo you got your line.
Now we know what the line is when your looking at a stock the one thing you want to look at is the trend, is it up or down. Now the good companies that have strong fundamentals will generally show really strong up-trends in a bull market and will still be fairly strong in a bear market. The key is again the fundamentals. Once you have determined it is a good company lets look for out entrance into the stock using the 50 day moving average as a guide.
Monsanto an agriculture company has been on a dramatic climb since the end of 06’ it had strong fundamentals.
1. This stock was performing admirably up until late July of 07’ then we see the beginning of a base. Base is somewhat of a consolidation of the stock price it formed the left side of the base in late July and the beginning of August and the last part of august it completed the right side of the base.
2. A couple of clues this was a good buy point is that the stock moved above the 50 day moving average. The base had finished forming. The W looking formation. It also had a resistance level at 70 when it broke out.
3. The second opportunity to buy the stock was in late November early December when the stock bounced off its 50 day moving average. Remember a good rule of thumb to protect yourself is to put an 8% stop so you don’t get hit hard and you still lock in gains if you have gained, but also protect you on the downside.
So when buying a stock a good rule of thumb is to look where the stock is in relation to its 50day moving average look for bases that have formed. Then buy in if the stock is a trending stock after it has bounced of its 50 day line.