I received this note from Matt the other day, regarding the MA (Moving Average):
Hi Mr. Phil Town,
I am still baffled by using the 35 day MA (35, not 30, b/c
you can only put in 5 for the “period” if you’re using weekly
intervals) vs the 10 day MA. In my practice investments, I get
completely different signals. For example, for CAKE, back in your book
example of the Connoley’s, if I use the 35 day MA, it tells me to NOT
sell on 3/26/03 when the other 2 tell me to sell. If I use the 10 day
MA, it tells me to sell on date 3/26/03 ( i went back in time using
your book’s example to 2/2003 to 4/2003). Also, if you are using “weekly” intervals, how does the “10 day
MA” sync. This exact issue wasn’t addressed previousy, but rather, we
taked about the other tools being synced. I’m specifically asking
about the MA sync. thanks.
Using the weekly intervals is going to give you totally
different results. The way these tools all work is off of specific
periods based on whatever the chart is that you are using.
For example, if you use a 5 year chart, the chart is not going to be able to
show daily information. There is just too much of it to show, so what
they do is show weekly data on that chart.
When you see a bar or point
for a specific time on the 5 year chart, the range of price that you
see there is based on the highs and low and opening and closing prices
for the week rather than for the day.
On the other extreme, day
traders use 1 minute periods on their charts so that what they are
seeing when they see a bar is the price change during that one minute
Since the tools that an investor
uses work on the chart the investor selects, the tools are designed to
take the inputs that the chart is using to display price over time.
What that means is that a five year chart uses weekly data; therefore, so does
the MACD and MA and Stochastic. This can
actually be quite helpful to see a lot less arrow driving in/out
activity on a five year chart than if we did the same five years on one
We can use that for mutual funds, for example, or for
simply being less involved on a day to day basis. Instead of trading
in and out once a month, you might be going in and out once every 6
months. Instead of watching your portfolio every day, you watch it
once a week.
Obviously you can get larger swings with slower signals,
but that’s okay for some people. Slower signals are a nice middle
ground between being very active with your portfolio and being not at
Now go play.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.