A few basic questions. I have read a few articles here but I would like some clarification.
1. Why the 200 Day MA? I understand that on the high side, the 8% SL will probably get us out before we fall way down to the 200 day ma (which waiting that long may give us a huge loss). But if you go back to the low of March 09, you would have to wait a long time to get in at the 200 DMA line and miss a lot of gain. Why not the 100 or 120 or 150 day MA? Why 200? It seems that with 200 you get in too late and get out too late.
2. Is the EMA that much better than the SMA? I understand that the EMA is recommended.
3. Why the 8% stop loss? I understand that we don't want it too low or too high. But why not 7% or 9% or 10%. It seems that there is often a 5-8% up and down fluction. One might often have to get out at the 8% SL and the market still trends up.
4. Let's say the market is whipsawing a lot. If the line goes above the 200DMA and we buy and the next day it falls below the 200DMA, do we get immediately get back out? If you say give it a few extra points before getting out, how many? Going back a few years the graph of the DJI was relatively level over a long period but had a lot of quick up and down moves. If we followed to the letter the 200DMA guidelines, we would have been getting in and out every few weeks.
5. Let's say the market is in a decent uptrend and we are well above the 200DMA and it falls 8% and we get out. If the graph line continues to go down I assume we stay out. But what would we do if it starts to go flat. Do we immediately get back in since we are still above the 200DMA or do we wait for a while to see where things trend?
5. I am looking at a couple of ETFs that follow midcap stocks. One has an expense rate of .35 and the second has a rate of .15. But the first one does about 4-5% better than the second. Do I go by the better performance or the better expense rate? Does it matter how big the fund is? What do you look at when you try to chose between 2 funds that follow the same index?
Thanks
200 day MA
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Posted 2 years ago #
Donato
MemberHi Stott,
As you are learning, trading is part science and part art!I'm not going to take the time to answer all of your questions, but I will make a few comments. The first is that historically the 200 day MA is simply the line in the sand that indicates the major trend. Do with it what you want.
The second is risk management. If you are a beginning trader, your time may be best spent studying anything and everything you can about risk management; it is your only friend when it comes to trading. This includes things like share sizing, especially with regard to your stop placement.
On a final note, you will find that trading is really more about fear and greed; psychology and emotions. Once you plunk down the bucks in a trade, you will see what I mean! Always start small to avoid undue risk.
Good Luck
Posted 2 years ago #
