When I want to add to an existing position, I have at times bought when I really like a stock but it is below both the 10 and 50. AERT is a good example. I’m not sure if that’s good or not. Haven’t been trading long enough to see the outcomes. Thoughts?

Generally though, I won’t create a new position until I get a green light. Below 10 and 50 is a red light. Above yellow and below 50 is a yellow, and above both 10 and 50 is a green.

For my day trading I use 5 and 10 period exponential moving averages. For day trading I always look to see where the 50 and 200 DMAs are before I enter just to make sure the stock isn’t about to hit a wall at one of those moving averages.

“What has worked in the past for a particular chart cannot be depended upon to work again.”

That’s why I wouldn’t “depend” on just MA analysis alone to manage my trades. I wouldn’t depend on just technical analysis either, and I would always make sure to follow the news and have proper risk management (read: stop loss orders) in place.

MAs are still a great way to get ideas or double check a trade. I wouldn’t rely on just the Return on Investment Capital figures to make a trade, and I wouldn’t rely on just TA to make a trade either.

A lot of people think that technical analysis can be used to mechanically buy and sell stocks, but I find that it’s very much an art. I try to focus on “what’s worked in the past” to filter through the various indicators.

There’s a bit of weighting things out too. “It looks bullish on the 3 year chart, bearish on the 3 month chart. It’s broken through the x-day MA, but the x+30-day MA looks like resistance… Let’s see that’s 2 for the bulls and 2 for the bears, I better dig around some more on this stock or find something else that’s easier to analyze.”

I also use some intuition about things to figure out “what may be different this time around”. For instance, with BBBY that last falloff in June came after a bad earnings call. There’s no earnings call right now to act as the same catalyst pushing the stock down. Should that affect my trade? (Although I find downward trending stocks will always find some piece of “bad news” at the right moment. Similarly, upward trending stocks will always find some piece of “good news” when a catalyst is needed.) Another way to tweak your plan is if there was a big jump up in the stock after crossing the 30-day MA a few months ago and the stock is about to cross again, you might want to get into the stock earlier so you don’t miss the jump.

And, of course, we are only using the MA as another tool in our arsenal to double-check on a stock. So in a sense I *am* looking for confirmation of a trade idea I already had. But we need to have the discipline to read the bad when it’s there. I’ve definitely held back on trades because the stock was in bad technical shape. Similarly, I’ve held back on trades with good technicals because the company was in bad financial/fundamental shape.