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Moving Average Crossovers and the Red/Green Trading Strategy

11/26/02 03:45:02 PM
by Koos van der Merwe

Any moving average based strategy does not function well when the share price moves in a sideways pattern. Here is a share that has given good profits in the past using the red/green strategy.

Security:   PCLN
Position:   Buy

The chart is almost self explanatory. Using the Red/Green trading strategy, ("Red/Green Trading Strategy", Traders.com Advantage, 9/30/2002) you buy the share when it crosses above the green moving average, which is a 1-day moving average of the HIGH offset forward by 10 days, and go short when the close crosses below the red moving average, which is a 1-day moving average of the LOW offset forward by 6 days. You would close out a position using a stop loss of recent price, a cross below a 3-day moving average (not shown) or as I have indicated in the chart, a break below/above the green/red moving average.

At the moment, the chart suggests that a buy has been given. This has been confirmed by the stochastic (21-5-3), and with the volatility of the price, a good profit could be made.

PRICELINE.COM
Graphic provided by: AdvancedGET.
 
Point and figure horizontal count suggests a target of $7.3. With the BUY price at $1.80 by the time you would have purchased it, the target of $7.30 is well above my 2.5:1 risk reward ratio. (Using a 10% stop loss, my risk is 10% of 1.80, or 0.18. With a 2.5:1 risk reward ratio, the reward should be at least 2.5 x 0.18 = 0.45. Therefore, my minimum target would be $1.80 + 0.45 = $2.25.)

The share is a buy on any pullback.



Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address: petroosp@gmail.com

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Comments

Date: 11/26/02Rank: 5Comment: 
Date: 11/28/02Rank: 5Comment: 
Date: 11/30/02Rank: 3Comment: 
Date: 12/08/02Rank: 4Comment: 
Date: 12/28/03Rank: 5Comment: Is the Red/Green Trading Strategy effective and profitable to use during intraday trading? Thanks, Earl
Date: 12/28/03Rank: 5Comment: Is the Red/Green Trading Strategy effective and profitable to use during intraday trading? Thanks, Earl
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