Wednesday, July 29, 2009

Brazil ETF - EWZ & moving averages

Disclosure: I am currently long EWZ.

In the chart below I've overlaid EWZ with the 75, 250, and 350 simple moving averages. We can see that these are providing support and resistance at various levels. The most important indicator for the very long term and most powerful trends is the 350SMA. Here, the 350SMA is acting as resistance to the upward trend.

For people trading very long term trends, now would be a good point to establish a well defined, low risk short position with a stop just above the 350SMA. A break above would be a signal to establish a long position with a stop just below the 350SMA.

As a shorter term trend trader, I purchased EWZ as it crossed the 75SMA back in March and have ridden it up since then with a brief stop out just a few weeks ago. I will continue to ride this trend until it ends. Currently there are 6.5 points of risk, or about 12.6%.

Having tested and traded all kinds of systems, I've found that simple moving averages provide some of the least noise and most powerful trend indicators. Trading is seen by many as a complex endeavor, and it can be if you make it that way. Some of the best trend traders have simple trading rules with less than 10 and as low as 2 parameters: Abraham Trading, John W. Henry, Dunn Capital to mention just a few. The mantra "Keep it simple stupid" is very applicable to trading, so I follow that sound advice.

No comments: