2. When a position moves below its 200-day moving average, it is a sell signal.
Using a 200-day moving average strategy allows you to take positions, knowing that you also have a sell point to protect you on the downside. The stop loss will protect you on the downside, while the entry point could have you in at the start of a potentially long-term uptrend.
The most basic principle of trend following is that there is always a bull market somewhere. When a trend peters out, a trend following discipline will be your impetus to sell and look for another position. A common mistake investors make is hanging onto positions too long after their trends have wound down, suffering greater and greater losses while missing uptrends in other areas. (Getting a solid start in the next phase of the market).
You can use our ETF Analyzer to find ETFs that are above or below their trend lines. To sort by funds above their 200-day moving average in ascending order, click on the header that says EMA 200. To see them in descending order, click EMA 200 again. The Analyzer also sorts funds according to where they are in relation to their 50-day moving average, if you prefer a shorter time frame.
More on trend following can be found in The ETF Trend Following Playbook.
For more stories about trend following, visit our trend following category.