Using Moving Averages – example: Colossus Minerals CSI

10 Things Traders Need to Know about Moving Averages.

PostDateIcon January 12th, 2013 | PostAuthorIcon Author: Stephen Burns

Do you use moving averages in your trading? If not you are missing out on a very simple tool for finding support and resistance levels along with possible trend identification. It is very interesting to lay a 50 day and 200 day simple moving averages on to a chart for the past year. You will begin to see patterns develop. Bounce off the 50 day, a last chance for support at the 200 day etc. Each stock and ETF has different key moving averages and different reactions to them on the chart. It can really help your trading to know the key moving averages for what you are trading and clues to support and resistance, they give clues as to where the buyers and sellers are waiting.

Ten things traders need to know about moving averages.

1. The 20-day moving average commonly marks the short-term trend, the 50-day moving average the intermediate trend, and the 200-day moving average the long-term trend of the market. The SPY is generally the best tracking ETF for the market in general.

2. In sharply trending markets the 5 day exponential and the simple 10 day moving averages have meanings as entries and exits to help manage your position when the longer term moving averages are too far away to use.

3.  Exponential Moving Averages apply more weight to recent price change, while Simple Moving Averages view each data point equally.

4. Moving averages let you see where other traders both big and small are buying and selling. The meaning of moving averages as support and resistance points on charts rely on how other traders are reacting with buying and selling when the prices approach those key levels.

5. Where the price on the chart is in relation to the 200-day moving average is determined by long-term investor and trader psychology. Bulls like to stay above the 200-day moving average, while bears sell short below it. Bears usually win and sell into rallies below this line as the 200 day becomes resistance, and bulls buy into pull backs to the 200 day when the price is above it. This line is one of the biggest signals in the market telling you which side to be on. Bull above, Bear below.

6. When the 50-day moving average pierces the 200-day moving average in either direction, it supposedly predicts a substantial shift in buying and selling behavior. The 50-day moving average rising crossing through and moving above the 200-day moving average is called a Golden Cross, while the bearish piercing of the 50 day through below the 200 day is called a Death Cross.

7. A great second chance entry on a momentum stock is with a bounce off a 50 day moving average as support for the price action on a specific stocks chart. Many institutional buyers are waiting at the 50 day sma to add to their long term positions in major holdings in growth stocks.

8. Getting a monster stock at the 200 day during a bull market  is like a gift from the trading Gods. However if the 200 day is lost it is very dangerous and could begin a fall with no net, this is a time to short the old leaders when the 200 day is breached and the stock begins a death plunge.

9. Some traders use systems that give buy and sell signals when a shorter term moving average crosses over a longer one or vice versa. Legendary trend trading pioneer Richard Donchian used a five and twenty day moving average cross over system for buy and sell signals.

10. Some traders watch for when a moving average begins to slope upwards or downwards and consider it as a signal of a trend beginning, continuing, or changing.

Let’s now have a look at the chart of Colossus Minerals
Colossus  has started the year right according to these averages. Some positive mentioning in newsletters and mining stock top 10’s for 2013, including my own top 10 , certainly did help the stock’s performance. There however is much more to come. The company is on schedule to start production this year of what could be a monster of a mine with superb high gold, platinum and palladium grades. Technically the stock is looking good. It is cruising above its 50 days and 200 days average, and I therefore see a new attempt to break the last year September highs, with or without the help of the general precious metal sentiments.

The Gold Investor’s Handbook – available at Amazon.com

Related articles

Gold Poised To Break Above $ 1700

US Gold Standard Balance

US Gold Standard Balance (Photo credit: hyperion327)

Gold and silver prices posted very strong finishes to the end of last week, and look like they could at long last be at the start of a significant trending move higher. Gold gained 3.46% over the week, with silver recording an impressive 8.98% weekly gain. The white metal has broken above an important resistance level at $30, and judging from the price action this morning looks like it could launch a quick assault on $32.50 – a level that marked stubborn resistance for much of the first half of this year.

Our Exclusive Richardson / Bass quant continues to forecast $ 2000 gold before the next 12 months – and the momentum of the call for stimulus is likely to increase after Fridays job report. Forecasts are now at the 125,000 level – down from the last month and confirming Ben Bernanke‘s gloom at the speed of the recovery.

Shorts May Be forced To Cover

Over at KingWorldNews Dan Norcini notes the rash of short covering that took place in the silver market last week. He points to $35-$35.50 as the last “line in the sand” for these speculative shorts, and thinks that we could see a huge new influx of money on the long side of the market if this price level is bested. $40 will then be in play again.

The story is similar in gold. If the yellow metal rises above $1,700, we can expect to see speculators dashing to cover their short positions. Aside from the increasing likelihood that the Federal Reserve is getting ready to launch another money printing scheme within the next few weeks, gold bugs have also been encouraged by chatter about the Republican National Convention discussing a  platform calling for a “gold commission” to study the feasibility of relinking the US dollar to gold.

Similar congressional commission was convened in the early 1980s, and to nobody’s great surprise endorsed the (non gold standard) status quo. Given the restraints that a genuine gold-dollar link would impose on federal spending, it is in fact almost inconceivable to imagine Washington voluntarily agreeing to return to a gold standard. However, the talk about gold gives impetus to more investors to become holders of bullion and  the gold mining shares . The rise of the commodity price and constant news about the sector becomes a self fufilling prophesy for driving the price higher.

 Lather, rinse, repeat” as the old saying goes. The problem (one of many), as we’ve discussed on this site before, is the law of diminishing returns associated with money printing: the more you do it, the bigger and bigger the stimulus doses have to get in order just to achieve the same “high” as last time. The more central banks resort to this, the more painful the inevitable economic correction, which makes going “cold turkey” on the money printing even more difficult.

Bloomberg Reports :Speculators Buying

Speculators increased bets on rising gold prices to the highest since March as mounting speculation that the Federal Reserve will expand its record stimulus drove the metal to its second-biggest monthly gain this year.

Money managers raised their net-long positions by 19 percent to 131,687 futures and options contracts in the week to Aug. 28, U.S. Commodity Futures Trading Commission data show. Combined bets across 18 U.S. commodities fell 1.9 percent to 1.3 million contracts, still near the highest in 15 months. The Standard & Poor’s GSCI Spot Index of 24 raw materials gained for the fifth straight week, the longest rally since June 2011.

 

Enlarge image Gold Wagers Jump to 5-Month High as Fed Spurs Rally

Gold Wagers Jump to 5-Month High as Fed Spurs Rally

Sergio Dionisio/Bloomberg

Gold climbed 4.5 percent last month, exceeded this year only by January’s 11 percent jump.

Gold climbed 4.5 percent last month, exceeded this year only by January’s 11 percent jump. Photographer: Sergio Dionisio/Bloomberg

Investors accumulated record holdings last week in exchange-traded products backed by gold, exceeded only by the U.S. and Germany when compared with national reserves. Fed Chairman Ben S. Bernanke pledged in an Aug. 31 speech to promote growth with “additional policy accommodation as needed.” The price of the metal rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.

Anytime they’re putting more money into the economy, it’s good news for gold,” said Dan Denbow, a fund manager at the $1.8 billion USAA Precious Metals & Minerals Fund in San Antonio. The outlook for monetary stimulus “allows the risk-on trade to come back in to the market.”

“As long as there is a worldwide monetary bias toward liquidity, easier money, quantitative easing and other measures, the underlying environment for an increase in commodity prices is favorable,” said Michael Cuggino, who manages about $17 billion at San Francisco-based Pacific Heights Asset Management. While Bernanke “didn’t really say anything new, he kept the door very, very open to further action down the road,” he said.