thushanthalk wrote:Hi guys
This is a open discussion for all technical experts. Write here how moving average help your buying and selling decisions.
I personally use Direct FN. Most time I try to buy shares when moving average indicate buying signal together with Relative Strength Index. Yesterday I bought SFIN at 36.20- 36.40 using this technique.
Comment.....
Thanks
Seems you have made a good decision (,and hopefully a good profit.)
However , I doubt whether this decision is supported by technical indicators of SFIN. I like to share my understanding of use of moving averages and RSI , and explain.( Sorry, I don’t know how to insert the charts here)
.
To use moving averages to generate buying signals, I presume that we have to use two moving averages ( a relatively short MA and a longer MA ) and observe the crossover signals. Another suggested method is to use MA and price crossovers. However I can’t comment on these methods, since I am not relying on moving average crossovers to observe buying / selling signals. One reason is that MA crossovers produce relatively late signals, since both are two lagging indicators. I think use of MACD is much advisable, because MACD uses two moving averages as the base, and also generates several other indications ( signal line crossover, zero line cross over, positive / negative areas , convergence / divergence with price action ) for enable someone to make a confident decision.
Coming back to this particular example , SFIN, it has very short price history ( from 17 Jan 2011 ?). From the beginning, the price chart was on a downward trend even up-to 24 Aug, , and MACD was in negative territory. During this period , there are several MACD signal line cross-overs, but none resulted in a zero-line cross over. A crossover occurred only on 25-Aug, for the first time. One can make a buy decision based on this occurrence, alone. . But my understanding is, in the absence of a relevant price history / MACD cross over history, a single signal-line crossover is not sufficient to make a better judgment.
With regard to RSI , RSI(14) has been below 55 level from the beginning up-to 24 Aug .during this period there are three instances of oversold positions (around - 15 March, 04 May, 12 July) where RSI <30. I suppose, these are the dates one should have concentrated for a buying decision.
Let’s look at the recent price / RSI changes .
Date price (close) RSI(14)
24-Aug.......... 27.10....... 44
25-Aug......... 30.10........ 60
26-Aug......... 37.30........ 77
29-Aug......... 38.40....... 78
It is mentioned you made the buying decision on yesterday ,ie 29-Aug. It ‘s strange, and contrary to the teachings of Wells Wilder on RSI. Infact , According to him , where RSI >70 , is an indication of a top and to be considered for a selling decision. A Failure Swing above 70 and /or a Divergence between price action and RSI are very strong indications of a market turning point.
May be my interpretation is not relevant. Like to learn from others .
( If someone says ... “the entire Technical Analysis and interpretations are not relevant “...I also agree, to a certain extent)
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