Moving Averages Offer Valuable Information But They Don’t Do What Some Traders Believe They Do

Traders are usually focused on maximizing profits and moving averages (MAs) are one of the tools some traders use to meet that goal. An MA is applied to smooth price data and help to identify the trend. One of the earliest references to this strategy can be found in the classic technical analysis text book, Technical Analysis of Stock Trends by Robert Edwards and John Magee. In the first edition of their book, in 1948, they wrote: And, it was back in 1941 that we delightedly made the discovery (though many others had made it before) that by averaging the data for a stated number of days…one...
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Understanding the Crowd on Wall Street Requires Analyzing Breadth Indicators

Herding is a behavior frequently seen on Wall Street. Experts in behavioral finance define herding as the tendency of individuals to buy or avoid similar types of investments solely because they believe other investors are buying or avoiding those investments. One example was the bubble in internet stocks that developed at the end of last century. Many investors worried a bubble was developing but after watching other investors achieve large gains in the sector, they rushed in. In popular culture, herding is equivalent to the “fear of missing out” or “FoMO.” It sounds irrational that a fear...
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These Companies Might Benefit from the Fed’s Tightening

Real estate agents tend to be among the most optimistic people in the world. Asked if now’s a good time to buy the answer is invariably something like “of course it’s a good time to buy because prices will be higher soon and you don’t want to miss out on those gains.” Low unemployment, to real estate agents, means there are more potential buyers. High unemployment indicates demand is building and buyers will flood the market once the economy turns higher. In a discussion with a real estate agent, expect any scenario to lead to the conclusion that now is the time to buy. Sometimes, their arg...
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A Short Guide to Using Volume

When looking at a chart, it’s striking how little information we have about a stock. A chart shows the price action and volume, and many chartists turn volume off, eliminating 50% of the information that’s available to them. Volume can be ignored most of the time but the rare signals provided by this information can be important. The chart below shows an example of when volume can be useful, just two days in six months. In August 2015, fears of a bear market grew quickly as the S&P 500 fell 13% in a week. Although many traders ignored the information, volume was telling us not to wo...
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Three Undiscovered, Undervalued Growth Stocks

Undiscovered, undervalued growth stocks can be Wall Street’s biggest winners. These are the kind of stocks that have everything an individual investor could hope for. Growth stocks should increase in value as earnings grow. Undervalued stocks should have low risk since the stock’s valuation is low. Undiscovered stocks are too small for the large funds to buy. Large funds need the company to grow so that it can be a meaningful part of its portfolio. When they discover the stocks, they push the price up benefiting small investors who were able to trade ahead of the funds. Let’s look at each of t...
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Five Income Stock Market Trading Under $2

Income investing is often thought of as conservative. Because they are focused on income, income investors might try to minimize risk. Some do this by limiting their investments to blue chip stocks like the ones in the Dow Jones Industrial Average or other large stocks. In the current stock market trading, this strategy might work well if you have enough wealth to generate adequate income from blue chip stocks. With the current yield on the Dow at about 2.3%, a $1 million investment will generate income of almost $2,000 a month. High quality bonds offer about the same yields right now so on...
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How Interest Rates Can Boost Your Returns in Stocks

Stock market models are generally used for market timing, a subject which has a deservedly bad name. Market timing has led many investors to ruin because they missed big moves. For example, after stocks bottomed in 2009, many models didn’t give buy signals until stocks were already up 30% or more. The delay was based on the model’s design and buying after the signal would have been profitable for many investors. Unfortunately, investors are prone to override their models. In the summer of 2009, sentiment remained bearish and some investors were waiting for a pullback to get in. By the time the...
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The Three Best Large Cap Stocks for Income Investors

Income investors face two challenges in the current environment – they need to combine high income with safety. Neither challenge is easy in the current environment. With the Federal Reserve holding short-term rates below 0.5% since 2009, the challenge of finding income has left many investors with more risk than they are comfortable holding. One example of this is master limited partnerships (MLPs), an asset class that promised high income but carried hidden risks. The chart below shows Alerian MLP ETF (NYSE: AMLP), an ETF that tracks an MLP index. These were actually investments in the energ...
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How to Design Your Own Relative Strength Trading Strategy

Relative strength (RS) is widely followed by professional investors. Their interest in RS is simple to understand – their job is to beat the market and the stocks with the highest RS are the ones beating the market. Professional investment managers cannot do their job without owning high RS stocks. Using strategies that include RS helps them meet their goal. Despite its widespread acceptance among market professionals, individual investors rarely follow RS. Again, their interest level is simple to understand – RS is difficult to find for individual investors. In the past, this indicator has...
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Four Stocks Warren Buffett Might Buy, If He Could

Once a year, the annual meeting of Berkshire Hathaway (NYSE: BRK.B) generates hundreds of articles about company chairman, Warren Buffett. The coverage is justified because Buffett is truly one of the world’s greatest investors. His success has led to a cult-like following of individual investors trying to be like Buffett. Unfortunately, but realistically, no one is ever likely to duplicate Buffett’s success. Buffett is a great investor who now benefits from his unique position in the investment community. When Goldman Sachs needed money during the financial market meltdown of 2008, they ca...
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