Stock Trading

Why You Shouldn’t Go Long Below the 200 Day Moving Average

I like to keep rules to myself short and sweet and they usually involve charts. I like to think of them like microwave directions on the side of microwave dinners.

Easy as 1-2-3

Not that I eat microwave dinners anymore since rocking my world with P90X and turning into an organic food eating machine of ultimate health and strength! haha Yeah, I’m pretty much a super hero now. Anway, a huge rule for me is not to go long below the 200 day moving average.

Why?  Because bad things can happen there.  Not that they ALWAYS do, but if something really nasty is going to happen, it’s going to happen from there.

So whenever I need to look at those microwave instructions, I look at a chart like this:

This is a weekly chart, so the red 40 MA line is the 200 day MA (5 x 40 = 200).   Honestly, how many times do you have to look at that chart and not understand what happens below the 200 day MA?

Sure fakeouts can happen and whipsaws can happen, but that’s the price of safety.  Here’s a fakeout:

And here’s 2008 again:

Fakeout:

2008:

Any questions?

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