Ideally we want to invest in strong companies with solid earnings growth. A share on a price chart is generally either going down, sideways, or up. I use simple technical tools to determine the trend. One or more moving averages on a chart provides a quick visual check of a company's financial health.
One of my rules is to only buy stocks that are trading above a 200-day moving average. The 200-day MA is not some magic critical number. The 200 value after years of back testing and research, is a good compromise.
3. Sell any stock that falls below the 200-day moving average. This will save a trader from being involved with the likes of RFG, TLS, BIG, FLC, and many other disaster stocks.
4. Never buy a stock trading below the 200-day moving average. These stocks are weak for a reason, and more often than not, only progressively get weaker.
Immediately selling a stock when it falls below the 200-day moving average is an important risk management strategy. IMO, strong companies have no business trading below the 200-day MA. Here are some recent examples why it is important to both get out and stay out:
TLS (Telstra): most recently fell below the 200-day MA at $5.10 (Feb 14, 2017). Current price $2.62.
RFG (Retail Food Group): most recently fell below the 200-day MA at $6.13 (Feb 24, 2017). Current price $0.425.
FLC (Fluence Corp): most recently fell below the 200-day MA at $0.82 (Aug 09, 2017). Current price $0.40.
FLC Price at posting:
40.0¢ Sentiment: None Disclosure: Not Held
