The 50 MA Support Trading Strategy
The 50 MA support trading strategy is a short term trading strategy that takes advantage of the fact that many stocks tend to halt their drop at the 50 day moving average. The 50 day moving average is a very important moving average that is often watched by many traders and investors. The 50 MA acts as a subjective support and it works often enough to give the observant market watchers quite a lot of trading opportunities every month.
Every week, there will be quite a lot of stocks that will touch their 50 MA and find support and rise from there. Take a look at the charts below and you will understand. This setup is really easy to spot as all you need to do is to look for stocks that are dropping and area about to touch the 50 day moving average.
This trading strategy is a swing trading strategy which you can scan by using end of day data, using the daily charts. It is a strategy that is excellent for those who have a day job but still wish to trade the stock market.
Every week, there will be quite a lot of stocks that will touch their 50 MA and find support and rise from there. Take a look at the charts below and you will understand. This setup is really easy to spot as all you need to do is to look for stocks that are dropping and area about to touch the 50 day moving average.
This trading strategy is a swing trading strategy which you can scan by using end of day data, using the daily charts. It is a strategy that is excellent for those who have a day job but still wish to trade the stock market.
In the chart above you can see how ABBV was dropping in May. It touched its 50 MA and then it reversed and went higher. This provided a very good trading opportunity for traders who can hold the stock for about a week. You can see how the stock was also near the important 200 day moving average that acted as another psychology support. The stochastics and MACD were also favorable and this give this trade a high quality trade.
The chart above shows another example of how the 50 MA provided observant traders a great swing trading opportunity. BAM dropped in December but it met its 50 MA and found support there. BAM was also finding support at the previous high which acted as an area of support. BAM then broke above a short term downtrendline which you can see I drew on the chart. From there, the stock rose and provided traders with a nice profit. Once it reaches a previous high, you can sell it and book the profits.
The 50 MA Support Trading Strategy Criteria
The chart above shows CNK finding support at its rising 50 MA. There was price support on the left too.
Chart courtesy of StockCharts.com
The chart above shows CNK with indicators like MACD and stochastics. You can see that the stochastics was oversold. The MACD was also improving and showing a slowing downward momentum.
The chart above shows ESRX finding support at its 50 MA. The stock formed a bottoming tail there and broke a short term downtrendline. Stochastics were oversold and the MACD forms a valley. The stock gave a trading opportunity and rose for more than a week.
Timing The Entry Using The 60 Min Timeframe
The daily charts will help you to spot trading opportunities. But in order to find the best entry possible, you need to go to a lower timeframe to refine your entries. Sometimes the lower time frame will warn you that it is not yet alright to enter. You need to wait a bit more. Perhaps because of the weakness in the general market that is affecting the stock.
The first chart above shows the daily chart of JBLU which gave us a 50 MA support trading strategy support. The second chart show the 60 min chart of JBLU. You can see that JBLU touch its 50 MA around January 12. However, the stock only rise partially before consolidating again. Around January 20, the stock gap up and went above its 60 min 20 and 50 MA and it provided a safer entry. If possible at all times, wait for the stock to rise above its 60 min 20 and 50 MA before entering.
Buying short term weakness in long term strength
If you watch the financial news like Bloomberg you will probably hear stuff like short term weakness in long term strength. This means that a stock is temporarily weak in these few weeks or months. In the long run, it will likely rise. The 50 MA support trading strategy allows you to "buy short term weakness in long term strength". It helps you to time the entry to buy the stock just as it is about to end a temporary weakness to continue the upward move.
Now that you have learned this strategy, start to look for stocks that are declining into its rising 50 MA. Keep it in your watchlist and then come back here and check out how many criterias that your stock satisfies. If it satisfies the majority of these criterias, you have a trade. The more criterias it satisfies the better your success rate will be.
If you have any questions feel free to comment below and I will try to answer them as soon as possible.
Now that you have learned this strategy, start to look for stocks that are declining into its rising 50 MA. Keep it in your watchlist and then come back here and check out how many criterias that your stock satisfies. If it satisfies the majority of these criterias, you have a trade. The more criterias it satisfies the better your success rate will be.
If you have any questions feel free to comment below and I will try to answer them as soon as possible.