Let’s review the basic system we are employing. It is a moving average crossover and trend defining method. Let’s look at a chart of the S&P 500.
Current Portfolio balance: $110,087 (started at $100,000 in the first week of February, 2020)
As I have said, you can use quite a simple system to trade successfully. I use other methods and don’t limit myself to 5 symbols. This is all fleshed out for you in my books if you want to go further. This blog, however, is self contained, including capital allocation.
We are using three EMAs (exponential moving averages). 8 = red; 21 = blue; 55 = brown or green. These are daily charts, therefore, the EMAs are daily.
We need to first look at the trend. There are different ways of determining trend, we will use our EMAs. If the blue is above the brown or green, we will consider ourselves to be in an uptrend. If the blue is below the brown or green, we will consider ourselves to be in a downtrend. If we are in an uptrend, we will only look at long trades. If we are in a downtrend, we will only look at short trades or their proxies.
Most nuances will be explain as a trade unfolds.
As you look at the chart above, you can see we are in a downtrend. We will not enter a trade here. We are waiting for a new trigger to be provided by the red or 8 EMA.
These things are all explained if you wish to scroll down, including capital allocation.
Gold: has experienced quite a pullback. It still needs some work to get all the EMAs to tell us it is a downtrend.
Oil: This chart is clearly showing a downtrend per our definition. We will await a trigger.
USD/EUR: This is a currency pair. Most people have trouble wrapping their heads around currency pairs. The important points will be covered when we see a trigger.
Bitcoin: The chart shows a downtrend. My problem with this symbol is that there is no proxy for it in the stock market. We are only using 5 symbols, but they cover a lot in the market place. I may have to change to something more conventional like APPLE, maybe.
If you are interested in my Basic Trading Books, click: