So, you want to be a better trader or a better investor. You’re tired of buying a stock only to see it head lower right after you pull the trigger.
You’re sick of selling a stock and they watching it jump significantly higher after you’ve sold.
You’re simply waving goodbye to your hard earned cash!
What you’re experiencing is nothing new.
For as long as the financial markets have been in existence… heck, as long as humans have been trading and bartering, this has been a problem.
There is a simple solution.
It’s called the 50-day moving average. I like to call it the “Money Magnet”.
First what is the 50-day moving average (Money Magnet)?
The 50-day moving average is simply the average price of a stock over the prior 50 days. To calculate it, you add the most recent closing price to the 49 prior days and divide by 50.
There are charting packages and software to do it all for you so don’t stress about it being complicated.
The Money Magnet gives you in a simple look what the overall trend is. Keep in mind 50 trading days is 10 weeks… or almost 3 months.
So it’s easy to see if the stock is trending higher or lower.
Also, since the Money Magnet is an average, big one day swings don’t move it much. So it tends to be a more calming way to look at a stock.
So how can you use it?
Let me give you a real world example…
Take a quick look at this chart of Alcoa (AA). Alcoa, as you probably already know is a Dow Jones Industrial Average Component and one of the world’s largest producers of aluminum.
Chart courtesy of StockCharts.com
Many investors look at the money magnet as a key indicator of when to get into… or out of… a stock.
In its simplest form, if the 50-day moving average is trending lower and the stock moves below the 50-day line, many investors will sell.
You can see that clearly in May on the stock chart. The stock was below the Money Magnet line… and the trend was down!
Now in September, everything changed. You’ll notice the money magnet line started moving higher… and the stock started trading above this point.
It’s a huge buy signal for many investors out there.
And in the case of Alcoa, the money magnet worked like a charm. By following this simple entry and exit strategy, you could have sidestepped a more than 30% loss in AA starting in May.
Then you could have jumped back in for a 55% gain starting in September.
Whenever I’m looking at a stock to buy… or monitoring one I already own, I always look at the Money Magnet line.
It’s an easy way to see trends. And in the blink of an eye you can see if a stock is overbought… or oversold.
And some investors even use it as a signal for entering and exiting investments.
The Money Magnet is an investing tool everyone should know how to use… and apply on a regular basis.