Do I buy or sell? How do I determine direction without constantly changing my mind? Well, it is possible to determine that relatively simply using a weekly chart of SPY. Each bar is a week of data. By using a simple crossover of the 20 exponential moving average (ema) with the 50 exponential moving average (ema), we can see which way is the momentum for buying or selling.
The technical system says to buy when the 20 ema is higher than the 50 ema. Sell when the 20 ema is lower than the 50 ema, suggesting shorter term momentum is lower. By using a weekly chart, I have programmed Metastock to show these transition points as Up or Down arrows. We can see that the system picked up the buy and sell points very well over the last 10 years. By following this system, one would have completely missed the massive drop in the market in 2008. And if one traded both directions, the equity curve would certainly have looked quite nice.
The direction currently is still Up for SPY, as says my daily indicator system, which is a lot more complicated.
Like the simplicity of watching the 20 and 50 ema's on a weekly basis. Great concept!
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