200dma & 10% variance

[bracke]

I have read a number of articles recently which refer to the price of a stock etc relative to its 200 dma.

It is stated that once the price moves 10% or more above its 200dma it is due for a pullback and vice versa, if the price is 10% or more below its 200dma it is due to pull up.

I have a number of questions.

1. Do any members use this system and find it works?

2. What is the % level of pullback or pullup that is generally experienced?

3. Is the 10% level the correct one or is another figure found to be better?

4 What is the time period that it generally takes for the reversal to occur?

5 Is spread betting the best way of speculating this system

Regards

bracke

 

[donaldduke]

Ive not heard of this one, but i did once read a study of
indexes eg S&P and 20% variance of the 200 day.

The study showed it was exteremenely good timing, however
these setups dont occur often for the indexes.

Obviously there are a lot of stocks and so setups should
be more frequent.

You should be able to test your system using historical end
of day data. This is freely available on the Web. Do your
own research and you will get a good feel for your system.
And an idea of where you should place your stops etc..

Is spread betting the best way of speculating this system?

I would say yes.. The system wont generate that many
trades so paying a bigger spread wont be that much of an issue.
And you get the benefits of tax free profits.

 

[PeterTT]

Brake ... The reason some people like a system like this is the 200 dma is a good picture of the trend eg look at current stock indices / metals / Eurusd you can see easily from the 200dma that the trennd is up .. All you are trying to do by using a 10% move above/below is trying to pick areas when it might be over/under valued. However, its diffucult / dangerous to use this system to enter trades that you think are in the trend .. for example look at gold price currently is 400 USD the 200 dma is about 382 so to go long gold on this basis you need to see it at 343.8 .. quite a pull back that would worry me that the uptrend has broken. Likewise, you would not be looking to take profits until 420.2? Moves of this size would mean you will be running positions for a considerable time.

Peter

 

[bracke]

PeterTT

I should have mentioned that on any pullback/pullup a bet in the opposite direction is not taken untill the price is within 2% of its 200dma (ie relative price is 1.02 (price/200dma)

You refer to gold. If you look at the relative price at the start of the year it rose to 1.15 it has reversed over the last couple of months and dropped to approx 1.06. This would not be a buy signal as it did not drop to or go below 1.02. If it does drop to the 1.02 level it suggest an upturn is due.

I agree that one may be running positions for a few months. It also occurs to me that the system may only work when the stock/index is in a particular trend (eg gold is in an uptrend)

It is interesting to note that the dollar which is in a down trend has had periodic pullups when its relative value has moved to 0.9 (ie 10% below its 200dma)

Regards

bracke

 

[PeterTT]

Bracke,
That makes more sense to me now, buy when its near/at the 200dma in uptrend and sell when its near/at 200dma in downtrend. However, this still does not help you when the trend ends as it always does/has. Fantastic for long term trending markets but be very careful when near the end of the trend as it does not really give you a stop level.

Peter

 

[bracke]

PeterTT

I agree. When the trend ends it could be costly.

I suggest the way to avoid too big a loss is to place a stoploss at an appropriate position. Likewise when the trade is moving in the 'right' direction use a trailing stoploss to lock in gains should the price reverse against you.

Regards

bracke

 

[ajay]

You can take a band with .236% to 200DMA. Sell below the low of the bar (which is not in the bands)with stop at the lower band and buy above the high of the bar which is not in the bands with a stop at the upper band.
Generally, if trend fails to continue & you get stopped out, the stock generally travels to the other end of the band. So, if you are aggressive trader, you can go long whn your short is stopped at lower band level. And vice versa.