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At 4:03 PM -0400 5/16/00, Andy wrote:
>here's an idea I've been working on a while:
>
>Usually, when prices moves above or below a moving average, most people jump
>in. What I've always asked, is this move significant enough for me to trade?
>Is there going to be any follow through or will this move collapse? So, what
>I've done is create an indicator that measures the difference between a
>price and its moving average. If this difference is significant enough, I
>would consider the move significant enough to trade. The question remains to
>be answer is how do we measure the significance of it? I've always used
>standard deviations but there are other measures.
Good to see a post about trading for a change.
There is a similar idea in Jeff Cooper's "Hit & Run Trading" book. It is called "Expansion Pivots" (Chapter 8).
The rules for long entry is (quoting the book):
> Range today is greater than the daily range of the past nine days, and
> Either yesterday or today the stock is trading at or below the 50-day
moving average and explodes higher.
> Tomorrow, buy 1/8 above the explosion-day high.
> Our initial protective stop is 1 point below the explosion day close.
(There is a lot more detail in the book.)
I would guess a similar effect might occur at the 200 day moving average.
But then if everybody trades it, then it will overshoot so then a system that takes advantage of the retrace after the overshoot might be better. <g>
Bob Fulks
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