Trading Techniques  |  SEP 1998

Moving Averages with Resistance and Support by Dennis L. Tilley

Moving averages are a popular way to signal trends. Combine moving averages and the classic chart analysis of support and resistance for trading mutual funds. Most simple moving average systems require one or two additional confirmation signals to avoid excessive whipsaw trades. Such confirmation signals can be based on features of moving averages such as the crossover of multiple moving averages or the reversal of the moving average slope. Momentum, volatility, volume and other nontrend indicators can also serve to confirm moving average buy and sell signals. In an effort to develop simple and robust stock and mutual fund trading systems, I have found that combining the simple moving average (SMA) with the concept of resistance and support very effective. Here is a mechanical system for combining these two tried-and-true tools to provide a robust, minimal-whipsaw, intermediate-term mutual fund trading system. I have used this system successfully for about four years to switch emerging markets funds and small-cap funds to and from a Standard & Poor’s 500 index fund and/or a money market fund.

by Dennis L. Tilley