The recent bear market should have convinced investors that they have to monitor and take control of their investments. They learned that it’s not safe to turn their portfolio over to an expert and then rely that they won’t lose a big chunk of their life savings in a bear market. So what is their alternative. They can monitor their portfolio by simply applying a moving average to their investment vehicles. I recommend that they use an Exponential Moving Average (EMA). That’s because an EMA places more emphasis on what is happening now. With the free charting programs available today like http://www.BigCharts.com it is easy to set up an EMA for each of your stocks, mutual funds, or ETF’s you own.
The size of the EMA is very important. I recommend that it not exceed 40 days. I know that you hear recommendations to use 50 days or 200 days, but a lot of time can pass before you get a signal to buy or sell, and you can sustain large losses and miss large gains, waiting for a change in the trend. Investors can test with the size of the EMA very easily, and come up with the best number of days to meet their personal risk tolerance. It’s easy to do. Then when you have your EMA posted against your investment vehicle(s), you can monitor to see when a change in the trend occurs. I recommend that you use a 2 month-daily chart so that you can clearly see what is happening now. When the EMA line turns up consider it a Buy Signal and when the EMA turns down, that’s a Sell Signal. It’s so simple and yet so valuable.
I believe that most investors rely on predictions and forecasts of where the stock market and their individual investments will go in the future. That means that in order to be successful their predictions have to be accurate. I frankly do not believe that it is possible to predict the future course of the stock market. The market only gives us current information on what is happening today. Ask any person who makes predictions what the market will do tomorrow and they cant give you an answer.
Since the market only gives us information one day at a time, we have to react to that information and base our decisions on what is happening now. Yes, we can make decisions on what is happening today and we can decide if the trend on the market is changing direction based on the information that we are being given. We can identify changes in the trend of the stock market, but we cant tell how long that change in trend will last. If the market is in an up-trend, the market can change whenever there are more sellers than buyers on a given day. And if that continues long enough, the trend will turn down.
So the trend is established by the daily market action and if that action is positive for a long enough time, the trend will be up, and visa versa. As a market timer, my job is to use mathematics to determine when that change in trend occurs. It can be done without making predictions or forecasts.
I developed the RIX Index many years ago. The RIX is a mathematical formula that translates the market action every day into a number that represents the trend of the market for that day. Its a cumulative number, so if the market goes up it will up. The RIX numbers will take the daily action and increase on up days and decrease on down days. I have a RIX Index for the NYSE and NASDAQ. In order to get a Buy Signal on the NYSE I need to see a +12.0 and to get a Sell Signal I need to see a -12.0. For the NASDAQ I need to see a +6.0 for a Buy and a -6.0l for a Sell. Its that simple. But more importantly, the RIX has identified changes in the trend of the stock market for 40 years. It doesnt tell me how long the trend will last, but it will keep me in the market for most of the big up moves and it will take me out of the market for most of the big declines. Thats as good as it can get when it comes to timing the stock market.
My mission is to help the average investor. I would like to share my 40 years of experience, timing the stock market, with anyone. I will send a free copy of my latest Newsletter to anyone who thinks that it might help.