Technical Analysis Challenge Day 1 - MA (Part 2)

Hello everyone, this is the part 2 of my TA challenge of moving average.

Recently, Nasdaq composite index has fallen into bear territory. In the bear market, the stocks tend to go lower and lower, and the game-plan can be totally different from the bull market!

In this post/video, I will be focusing how I use moving average to assist my investment journey in the bear market. I will make sure that this part of moving average video is more unique. Please note that I only have 1 experience in the bear market in my investment journey. So, my strategy is for your reference only and hope that I still manage to provide some insight to you. By the way, if you need a refresher on moving average or have not watched my previous video on moving average yet, you may watch the video here to refresh the fundamental of moving average.

I will break this video into 3 parts:

i) How to defense ourselves in bear market with moving average

ii) Which moving average to use to add more shares in bear market?

iii) Slope of the moving average- How I take my profit from my oil stocks before it crashed.

You may watch my video here for more interactive and animated chart, it will be a lot easier to understand. If you find the video helpful, please subscrite my channel and give me a like to motivate me to prepare more quality contents!

Let me quickly go through the typical behavior of bull and bear market again. In bull market, moving averages are sloping upward, stocks are moving higher high and higher low, each dip is an opportunity to add more shares. Buying at each dip can make us more money!

However, in a bear market, everything is opposite. Now, the moving averages are sloping downward, stocks are moving lower high and lower low. But… where to add the share? Wherever we add the shares, either at the high or the dip, it seems that we will lose money! Thus, in the bear market, we need to focus more on protection instead of just buy the dip that could finally hurt our psychology in the stock market.

Let's recall on what I mentioned previously: In a bear market, the stock tends to move lower and lower, and we do not know where the bottom is. While a high beta stock has a potential to bring us more profit in the bull market, in the bear market, it has higher chance to lose us more money when the stock is moving lower and lower!

Thus, whenever we want to add individual stocks in the bear market, it will be always good to refer to the index chart first!

i) Price is below SMA200 (red line)

ii) SMA50 (blue line) and SMA100 (orange line) are sloping down

iii) Lower high and lower low

iv) Now, EMA20 (pink line) acts as a resistance, and the price moves lower whenever touches it.

The above four characteristics show that the Nasdaq composite index is in a downtrend- a typical characteristic in a bear market.

However, let us change the chart to “WEEKLY" chart.

What do you see now? It is still in an-uptrend if we look the chart at a longer term prospective!

i) Price is above SMA150 (Green line) and SMA200

ii) SMA50 and SMA100 are sloping up

iii) Higher high and higher low

Now, it is pretty clear to know where to add shares, right? We can add the shares in the weekly support as long as it is still up-trend!

Interestingly, the last covid crash rebound at SMA200.

While SMA150 served as a good support for 2016 china market turbulence sold off, and 2018-2019 trade war sold off.

Of course, even weekly chart won't be able to hold for huge sold off such as sub-prime crisis in year 2009, and dot-com bubble burst in year 2000.

Nonetheless, weekly chart is still useful to help us to filter out a lot of noises in bear market, especially when we are using a daily chart.

Part 3: Slope and parabolic

Instead of chasing and buy more energy stocks, I put my trail stops on all my energy stocks (such as XLE and SLB) and sold them.

Why? If we look on the chart carefully, the slope of the price movement already changed. It became parabolic move, where the price movement is no longer as gentle, or near to the key moving average as previous price movement. When a parabolic move happened, the price is very far from the moving average, and this is a warning signal to me.
And indeed, it failed to hold and fall back to the key moving average again! Now, many people who chased the oil stocks, were trapped at the high. These will become a natural resistance to the price movement as they will prefer to get rid of the stocks whenever it moves back to their entry price.

Ok, that is all I would like to share in this video. Hope you gain some insights from my video. Would appreciate if you could give my video a like to motivate me to prepare more quality videos. Thank you very much and see you in the next video.