Easily Determine Stock Market Trends with TD Ameritrade
I’m going to share with you my favorite trading strategy that you can use to easily determine stock market trends.
I want to teach you how to buy low and sell far higher, because this is how money is made in this business. To be a successful investor you must buy low and sell high.
Sounds simple, right?
Most new would-be investors unwittingly do the exact opposite. They buy high out of greed and then sell low out of fear.
How my strategy works is simple. We buy stock when it’s in an uptrend and will consider selling it at the end of the uptrend.
So how can we determine the market trends?
In order to determine market trends you can use this simple moving average crossover strategy.
A moving average is a trend following indicator and it’s created based on past prices.
How the moving average crossover strategy works is simple.
Use a pair of simple moving averages.
We’ll then wait until these moving averages cross over each other so we can determine the incoming market trend.
In fact you don’t need to draw these moving averages by yourself.
Almost all trading platforms will help you do so, you just need to know what they are and how to apply them in your analysis.
There are many different ways to use the moving averages.
I personally prefer using the 180 day and the 60 day simple moving averages simply because they seem to be more accurate than other moving averages, and the most important thing is these moving averages work for me.
When the 60 day moving average crosses above the 180 day moving average and both lines slope upward: This means that your stock is in an uptrend.
So if you follow the trend to buy the stock there’s a high chance that the stock price will keep going up and you can make a profit.
On the other hand when the 60 day moving average crosses below the 180 day moving average and both lines slope downward: This means that the prior uptrend is stopped and a downtrend will begin.
In this case you can sell your stock to get out of the market and consider buying it back when the trend reverses.
Okay now you know exactly how our strategy works. So how can you apply it in your stock analysis?
First of all you’ll need to set up the indicators.
I’m using that thinkorswim trading platform from TD Ameritrade as I have mentioned before in another post.
It’s a professional trading tool that you can use to analyze stock charts and the cool part is this software is free.
It’s very easy to set up the simple moving averages.
You’ll need to draw two lines SMA or simple moving average 180 and SMA 60 upon the right hand click on studies and then select edits studies.
There are a few tabs under studies tab in the software.
Type in simple moving average and you’ll see the simple moving average indicator in the software.
Since we need to draw two lines the SMA 60 and the SMA 180, we will add to Simple Moving Averages to the stock chart.
Select simple moving average and then click add selected twice because the default moving average time period is set at 9.
You’ll need to change it to 60 and eighty, double click on each moving average and change the time period to 60 and 180 respectively.
After changing the time periods simply click Apply and OK, and when you do you’ll see the screen.
The software automatically helps us draw the two moving averages. So using the TD Ameritrade software you can now determine incoming market trends. In another post I will show you an example so you can understand clearly how a simple moving average crossover strategy works.