The 50 M support trading strategy is a swing trading strategy that utilizes the power of the 50 day moving average to act as support. Since this is a swing trading strategy, it is very suitable for those who have a day to day job and do not want to monitor the stock every hour.
You can enter the stock based on end-of-day data and instruct your broker to purchase it the next morning. The 50 M trade usually lasts from anywhere between 2 days to 2 weeks. It is a slow paced type of swing trading and therefore you do not need to be so stressed looking at the stock.
This strategy revolves around the 50 day moving average. We are not referring to the hourly 50 MA or the 5 min 50 MA. We will be focusing on the 50 day moving average because it is one of the most widely followed moving average in the world of stock market.
Many many stocks tend to bounce off their 50 day moving average. Therefore, this presents the trader with the opportunity to buy the stock when it touches the 50 day moving average and sell it when it rallies and gets too far from the 50 MA.
The chart above is the daily chart of HPQ.
The blue line is the 50 day moving average of the stock. Notice how in the middle of August 2017 HPQ had a correction. The stock declined to the 50 day moving average and then bounced up for the next few days. This provided traders with a nice swing trade.
In order for a stock to form a valid 50 M support trading strategy candidate, the stock needs to:
Entry points are very important for any trades. Its best to get a nice entry point that is neither too early nor too late. Too early will result in the trade hitting the stop loss prematurely. Too late will make the reward risk ratio not favorable.
A nice balance should be found. I believe the way to enter below will give the trader the best entry point.
Enter the trade when:
Stop losses are important because even the best setup can result in losses. There are no certainties in an individual trade. Trading strategies work in the long run because of the in-built edge but any single trade can be a loss because of external factors that are beyond the control of the trader.
There are a few ways to place the stop loss:
Ideally, you should put the stop loss at a support area which the stock should not break.
Sometimes a stock can give only 1 setup after a few months. But there are times when a stock can give multiple trading setups. When a stock has given you one success, it can often give you many successful trades in the future. You have to be observant.
ADBE is a stock that gave traders many many 50 M trading setups. Take a look at the chart below.
From the middle of May 2017 to the middle of August, ADBE touched its rising 50 MA 5 times and provided beautiful setups for swing traders.
ADBE satisfied the criterias:
Trade 1 happened around the middle of May 2017. The stock corrected near to its 50 day moving average. Although it did not touch the 50 MA, it went very very near to it and then quickly went back up to form a bottoming tail at the end of the day. The trader can enter the next day when the stock traded above the highs of the candlestick. Put a stop loss at the lows of the bottoming tail.
Trade 2 happened around the middle of June 2017. It started off with a slow decline and then the stock formed a big red day and climaxing with a gap down. Although there was a quick crash down in the last two days, the stock dropped to a support area. Another bullish indication was that ADBE gap down but quickly closed higher. This told us that the bulls were buying the stock on weakness.
Sometimes you need to be flexible in trading and learn to recognize important technical concepts. This is where an experienced trader will have an edge over new traders.
The trader can enter the stock when it trades above the highs of the green candle. Put a stop loss below the lows of the green candle. Although the stock did not immediately go up, the trade was still valid because it did not hit the stop loss.The stock traded sideways for 2 days, then decline and formed a bottoming tail and continued to move higher after that.
Trade 3 is actually another extra opportunity for those who missed trade 2 to enter the stock. The stock corrected once again to the 50 MA and formed a bottoming tail. Traders can enter the stock once it goes above the highs of the bottoming tail and put a stop loss below the low of the bottoming tail.
Trade 4 happened in the beginning of July 2017. ADBE had a nice gradual pullback to its rising 50 MA. The stock formed a bullish harami at the 50 MA and the next day it formed another green candle. Notice how the stock also formed a nice downtrendline for the stock to break above. I have not drawn it but the observant trader will notice the gradual pullback and can draw a trendline there.
Traders can buy the stock once it breaks above the small green candle or buy when it trades above the downtrendline or buy the stock when it trades above the highs of the bullish harami pattern. Put a stop loss at the lows of the entire V shape pivot point that the stock price formed.
Trade 5 happened around the middle of August 2017. The stock once again corrected to its rising 50 MA. Then it formed another bullish harami. The trader can buy the stock for a swing trade the moment it trades above the highs of the pattern. Put a stop loss below the low of the bullish harami.
Now that we have addressed the issue of how to enter the stock, we also need to consider how to exit the stock. A swing trade requires you to take profits within a few days to perhaps two weeks. Any longer will become a position trade. Here are some ways to exit the stock:
*You do not need to sell everything. Sometimes you can sell 1/3 or 1/2 and see if it can go higher.
If you want to increase your accuracy in the 50 M Support Trading Strategy, I highly recommend that you learn about support and resistance and Japanese Candlestick Patterns. You should also have some knowledge about the concept of overbought and oversold. Also try and incorporate some oscillators into your trading.
My free Trading Course will guide you through all the different technical concepts you need to know.
When you see a stock correcting to its rising 50 MA and the technical concepts I mention above happens at the same time, your trade will be much more accurate.
You have now learned a simple yet effective swing trading strategy. Congratulations on learning how to trade the stock market. One simple trading strategy is all you need to be able to reap profits from the market every week. There are at least a few nice stocks that will correct to their rising 50 MA every single week. Go through the S&P 500 or just scan through stocks with an average volume of 1 million a day. You will definitely be able to spot some trading candidates.
Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com
Charts with the investing.com logo are courtesy of Investing.com powered by Trading View
Aug 17, 18 05:07 AM
In this lesson we will take a look at the technical developments of OKA Corp's stock price and why it moved the way it did. We will also have a look at what might happen to OKA's stock price.
Aug 16, 18 07:28 AM
In this lesson, we will learn how and why BMY manage to bottom out and start a new uptrend.
Aug 14, 18 08:19 AM
In this lesson we will learn and examine why Pentamaster was able to recover all of its losses to start a new uptrend and achieve new highs.
Aug 13, 18 05:56 AM
The KLCI is currently at resistance territory after a nice big rally. I would consider a sideways trading a possible scenario at the moment.
Aug 13, 18 05:22 AM
In this lesson, we will learn how AAPL's 15 Min stock chart formation help to send the stock higher for 2-3 days to give traders a nice swing trading opportunity.