Sunday, July 12, 2009

KISS: Keep it Simple Stupid!

The title of my post and one of my favorite sayings will explain a simple yet effective strategy that you can add to any trading system. Here it is run a 5 day Exponential Moving Average (EMA) and a 20 day simple moving average on your chart. Now this method can ideally work on anything whether it is a stock, etf, index. Here is the daily chart on SPX, now ready for this because it is very complicated, ok, go long when the 5ema crosses over the 20 sma, go short when the 20 sma crosses over the 5 day ema. Yes it can be that simple, that's see how we would have done over the last 6 months. We had our bullish cross around March 16th at 740 and proceeded to climb to as high as 956. A possible 200 point move we could have captured. Then we had the bearish cross in Mid June prices fell moved back up to test the 20 sma then plunged 920 to 880 for a 40 point move so far.

Now this strategy works well in trending markets, not as well in rangebound markets and of course there are other factors to figure in. For example I use support / resistance and trend lines along with extreme readings in the NYSE TICK indictaor to time and exit my positions. Of course there are many other factors to consider but the core of my system is what I just explained. It takes time like anything to get better at trading, but my whole point in this post is to show those that are over doing it with indicators and percentage movements and all that, that sometimes more is less and less is more. However to each is own, I hope this info is helpful and I would love if anyone else wants to share some simple startegies for all to see as well so we can all learn together. Let's make this our motto when we trade!