The principal of investing "Buy Low, Sell High" - Moving Average

It is very easy to make money during a bull market, but in reality, the few who profit are those who have the foresight to back up from the market before the advent of a crash. As a result, utilization of statistic analysis tools and wide knowledge of fundamental analysis are very important to foresee the market fluctuation.

We have to prepare for the eventual market crash. Stocks market rise and fall, the higher the rise, the heavier the fall. Although a crash may not seem imminent, we need to make advance preparations in anticipation so as not to be trapped when it descents upon us.

There are many methods to anticipate market flucutation, but few people are able to apply these techniques. We can use the moving average technique to decide when to enter and get out of the market in time.

Before you go to bed every night, you should calculate and compare the last short term moving average against the long term moving average. If the short term moving average is much higher than the long term, then you can sleep soundly, as the probability of the market crash on the next day is extremely low and close to zero.

When the gap between the short term and long term moving average starts to narrow, you should start to exercise more care, as the correction is forthcoming. Should the short term moving average below the long term moving average, you should sell off all your shares at the earliest opportunity, including those in which you are suffering a loss.

A crash would not suddenly creep up. There will be some signs of its pending arrival. Hence the principle of comparing the short term and long term moving average may have been able to help you to escape the market crash. This method is very accurate and it is imperative that you should follow this principle faithfully.

If we simply based on the short term and long term moving average to trade. The accuracy is not very high. That is to say, when short term moving average cross the long term from above, it does not guarantee that the market is the correction period. In fact, the stocks market may push up further after a small correction.

Then, why are we using the moving average method to anticipate the market fluctuation and still be able to gain a handsome profit?

By using this method, when the market slide down further, the short term moving average will fall and cross the long term moving average automatically. If we sell off our share immediately, the losses are minimum. The same theory will also apply to the up trend market.

As a result, if you use the moving average method to make your decision, and at any time when there is a wrong signal that contradicts with the market, the losses are minimum.

However, when the stocks market is at the down trend, lasting over weeks or months, the moving average method will not be accurate. Even after each rebound, due to overall negative sentiment, prices will continue sliding downward, with a lower indices reached each time. After a few experiments, I discovered that the 250 days moving average is very useful. When index fall below 250 days moving average, you should leave the stocks market and wait for another opportunity.

Because of the region stock market react differently toward economical change extention, it naturally does have the different in stock market's performance. Some stocks are already rose in the bull market's first issue and some had to wait till the bull market's third issue. Therefore we have the necessity to recompute a set of suitable best repayment rate combination to the sectors with highest expected value combination.

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