All posts by Sami Abusaad
How to Use the 20 and 200 Day Moving Averages
If you hate Moving Averages, odds are you don’t know how to use them. Combined with knowledge of price-action, they are an invaluable tool. In this article, I’ll show you how to harness the power of the 20 and 200 Day Moving Averages. What Is a Moving Average? A moving average is a stock’s average price over a certain time period. That time period can be anything from minutes to days to weeks to months to quarters to even years. A daily moving average is the average of a stock’s daily closing prices over a specified number of days. How Is the 20 Day Moving Average Calculated? The 20 day moving average is the average closing price of a stock, ETF, or other asset over the last 20 days. Each day it changes because the oldest closing price gets removed, and the newest one is added. That’s how simple moving averages are calculated. Exponential moving averages use a formula to give a greater weight to recent prices, which is beyond the scope of this article. How Does the 20 Day Moving Average Help Us Trade? Moving Averages are directional guides that speed up the technical analysis of trends. If the moving average is pointing up, you know the stock is bullish. If it’s pointing down, you know the stock is bearish. They are superior tools in uptrends and downtrends, and their importance in sideways trends is greatly minimized. In this article, I’ll show you how to use them with sideways trends. When using moving averages, the color should be consistent across multiple timeframes. The type of moving average doesn’t matter, but it should be the same on all time frames. How to use the 20 Day Moving Average The 20 day moving average is one of my powerful tools. When Stocks are about to transition up, the 20 day Moving Average with start to hug price and curve up. That is your indication that the stock is about tot transition. So, even if the trend is sideways, keeping an eye on the moving average will tell you when the sideways trend is breaking. In these examples, the moving averages alert you to the higher-low, which indicates that the stock is about to breakout. I call this “the halt”: when the stock stops criss-crossing the MA and begins to respect it. The MA applies to every timeframe the same way. The only exception is the daily, which has gaps. While the moving average is going through price, don’t touch the stock. When it starts to point up, it’s indicating that the stock is going higher. What Does the Direction of the 20 Day Moving Average Mean? A rising 20 Day Moving Average represents positive market action or strength. A falling 20 Day Moving Average represents negative market action or weakness. During a strong uptrend, retractments tend to halt at or near the rising 20 day Moving Average. During a strong downtrend, rallies tend to halt at or near the declining 20 Day Moving Average. Following penetrations of the 20 Day Moving Average, pullbacks to the broken 20MA become very likely. In this example, we see the stock bouncing off of the 20MA on the uptrend. When the retracement breaks the 20, the next several retracements also break it. The 20MA is no longer relevant as the stock goes sideways. This is anindication that the trend is over. What does the Slope or Angle of the 20 Day Moving Average mean? The slope or angle of the 20MA is indicative of the strength or weakness of the underlying stock! A 45 degree angle is ideal. Steeper than 45 indicates that the trend is not sustainable and will soon run out of fuel. Shallower than 45 degrees indicates that the stock is weak and lacks momentum. Here is an example of an ideal Rising 20MA slope. Here is an example of an ideal Declining 20MA slope. Here, the MA starts at a 45 degree angle, but becomes steeper (unsustainable), and tops out: How to Play the Trend of the 20 Day Moving Average The odds are much higher in the direction of the MA. The 20MA must be going from bottom left corner to upper right corner (when playing long) Price is at or near the 20ma, not far away from it (not extended) The 20MA is not crisscrossing price The 200MA must be below price, not above it. The correct entry is almost always at/near the rising 20MA or the declining 20MA However, we do not enter because price is near the 20MA. We must have a tradable pattern Other Ways to use the 20 Day Moving Average Expedite the scanning process: For bullish stocks, look for a rising 20 MA. A flat 20 MA indicates the stock is currently momentumless. Determine the stock’s extension: If a stock is tracking just above the MA, the stock is not extended. If the distance between the stock price and 20 MA grows rapidly, the stock becomes extended. Locate support/resistance: In an uptrend, support is almost always found at or near the MA. Determine if there is a price divergence: if a stock price shoots up above the MA while the MA continues at the same rate, the stock will most likely pullback to the 20 MA. Anticipate reversals: when a stock is in an uptrend, price respects the 20 MAs. You can spot reversals before they even happen. Anticipate a rise in volatility: If using two MAs (a faster and slower), cross overs between the two MAs indicate volatility. Calculate risk to reward: when the 20 Day MA is your target, you can calculate the risk Determine Relative Strength to Relative Weakness: If a stock is trading above the 20 MA, it is showing Relative Strength. If it’s trading below the 20 MA, it’s showing Relative Weakness. Now let’s talk about the 200 day moving average. How Is the 200 Day Moving Average Calculated? The 200 day moving average is the average
Continue Reading -->I’m Bullish and Not Ashamed of It
Sami was bullish last week… and he’s still this week. See the details here: Jump in and find out: Why Sami is STILL all out bullish Why almost everything is a buy What is different about a very bullish market Why APO may breakout The name that may be copying ACAD The other names Sami wants to buy and sell And more!
Continue Reading -->I’m Bullish and Not Ashamed of It
Sami put on a red shirt… but he sure doesn’t hate the market. Tune in to this week’s Double Watchlist as Sami Abusaad shares why he’s bullish on the market. Jump in and find out: Why Sami is bullish How to use the 20 ma to judge the market’s bullishness Why Bitcoin looks so sloppy Entry triggers for Ethereum and Dogecoin Where ACAD might be going next Which names are still extending from next week The name Sami’s giving a new target Why GE could be the next Chipotle (CMG) And more!
Continue Reading -->Caution Up Ahead
The market triggered a weekly buy setup, but the daily chart is still waiting for the 20 day ma to turn up. But there’s still a bit of danger that’s possible. Find out what you should be looking out for this week. In this video, Sami explains: – When a breakout failure could be identified – Which stocks could have pullbacks this week – How he typically would have played BGCP – What he didn’t like about CDEV (and what he likes about it now) – Why EPC is better as a long term play
Continue Reading -->A Line in the Sand for Bullish Sentiment
Both QQQ and SPY have had double bottoms and equal highs over the past week. Sami’s expecting the market to start trending up again, but what has to happen before he goes bullish again? In this video, Sami explains: – How to determine what sellers and buyers are doing – What a line in the sand has to do with his sentiment – Why ACAD isn’t a long-term trade – Which pattern can be found in ADT – When he will take FB as a long term trade
Continue Reading -->The Most Important Quality for Traders
Last week SPY was looking bearish, but it’s already reversed most of the move down. QQQ and IWM are looking shaky. What quality will best serve your trading in the foreseeable future? In this video, Sami explains: – How IWM is similar to Bitcoin – What every trader’s goal should be – Why he’s going with long-term swing ideas – What he’s looking for the 20 ma to do in ACAD – The two ways for stocks to correct
Continue Reading -->My Plans for Trading Crypto
Sami expects both Litecoin and Bitcoin to continue higher. Find out what he plans to do for his positions in both stocks, how long he plans to hold them and what patterns he’s watching. In this video, Sami explains: – What happened to Litecoin right as he got on the mic – How to recognize a 1 2 3 pattern – Why Bitcoin is a long term trade – How the market reminds him of Game of Thrones – Which pattern can be found in BCRX and BLDR
Continue Reading -->Bitcoin vs. Dogecoin
This Week’s Double Watchlist is here! Jump in and find out: Why we’re at risk of a breakout failure Why Bitcoin could take the lead from Ethereum (and yes, Dogecoin…) Where Sami would get in Bitcoin Why GameStop (GME) could be ready to rock Sami’s view on McDonald’s (MCD) And more!
Continue Reading -->Why I Like Apple
Jump in and find out: Why Sami actually likes Apple (AAPL) now How he feels about Facebook (FB) The interesting setup in the QQQ’s When a buy setup triggers How a head & shoulders pattern works Whether IWM can break out… or break down Which major ETF might start leading And more!
Continue Reading -->Two Trading Mistakes That are Holding You Back
So you think you’re doing everything right but STILL can’t boost your P&L? It doesn’t matter how well you read charts, understand market trends, or how many newsletters you read, you’ll never be successful if you keep making these two mistakes. When I started trading, I had to learn these things slowly, the hard way. Now I’m sharing them with you so YOU don’t have to. You make choices based on what you think should happen In 2007, I quit my job and started trading full-time. That year, the market tanked and continued to be bearish for almost two years (this is probably the reason I like to short rather than play long). To me, Radio Shack was the most obvious stock to short. I thought it was outdated and overpriced. For proof, I needed only look at my local Radio Shack, which was always empty. I thought this would be easy money. The market didn’t agree with me: No matter how bullish the stock looked, I thought it had to go down. Eventually, in January 2014, the stock did turn bearish: I went short at 80 cents, thinking the stock had to go to zero. Then — just a few weeks later — I saw the stock triple off the lows and I had to cover my position. My preconceived beliefs about what should happen COST ME MONEY You could be the smartest person in the world, but if you come to trading with preconceived ideas about what should and shouldn’t happen, you will lose your shirt. This is especially true if you’re like me, coming to trading from a successful career in finance and thinking you understand market trends. Look at all the people who got burned over the years shorting Tesla because the company was losing a million dollars per car. They thought there was no way Tesla could make it. Now, they’re the fifth largest company in the US. The choices you make in the market should be based on what the market is telling you, regardless of your internal monologue. To become a better trader, do away with notions of what should or shouldn’t happen. You don’t understand your personality Not Everyone should take the Same Strategies! Too many new traders think that, to be successful, they just need to understand chart patterns. Chart patterns are a dime a dozen. You can Google them for free. Here are sixteen: Your goal shouldn’t be to recognize these different patterns. Your goal should be to recognize which of those patterns work best with your personality. I talk about gaps, climactics, breakouts, pullbacks. These strategies make the most sense for me and my personality. You need to discover which work best for you. “In trading, as in archery, if there is effort, force, straining, struggling, or trying, it is wrong.” – Jack D. Schwager, Market Wizards Jack Schwager started as a struggling trader who could never get his account above $100,000. So, he decided to interview the world’s best traders, assuming they all traded the same way. He came to realize that no two of them traded alike, but they all traded in line with their own personality. The best traders in history play to their strengths. Learn what kind of trading YOU like, what kind of trading YOU are good at. Do you like to day trade or swing trade? Trade with the trend or counter-trend? Do you like to scalp or hold all day? It took me a long time to find out which strategies best suited me. Once I did, I never deviated from it. You have to find a way of trading that suits you.
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