How To Use The 10-Week Moving Average For Buying And Selling | Summary and Q&A

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April 5, 2021
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Investor's Business Daily
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How To Use The 10-Week Moving Average For Buying And Selling

TL;DR

Utilizing the 10-week moving average as a tool in portfolio management allows position traders to manage risk, identify entry points, and determine when to sell stocks.

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Questions & Answers

Q: How can the 10-week moving average help in managing risk and portfolio management?

The 10-week moving average allows traders to define entry points and have a clearly defined level to sell. It helps in limiting losses and avoiding reliance on hope or freezing up during a trade downturn.

Q: Why are pullbacks to the 10-week line considered logical entry points?

Many top stocks find support at the 10-week line during their big moves. This makes it a compelling entry point as it indicates potential price stability and a good guide for when to exit the trade.

Q: How can the 10-week line be used to calculate the size of a position?

By risking a set amount (e.g., 1% of the portfolio) for each trade and considering the 10% decline that the stock may experience before reaching the 10-week line, traders can determine the appropriate position size.

Q: In what circumstances should the 10-week line be used as a signal to sell a stock?

Once a leading stock has a decisive break of the 10-week line (a close below that level of 2 or more on a weekly basis), it may signal the end of its move or the start of a base building period. This suggests it's time to allocate funds elsewhere.

Summary & Key Takeaways

  • The 10-week moving average is a valuable tool for position traders to manage risk and define entry and exit points.

  • Pullbacks to the 10-week average can be strategic opportunities to add or initiate positions in leading stocks.

  • Stocks that meet fundamental and technical screening criteria and are within 10% above the 10-week line are ideal for utilizing this strategy.

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