The 200 pound man....
Post#547
The longer the time frame is, the stronger the trend is. This is why the first chart I look at when picking a stock is a 2 year weekly chart. If I'm buying a stock I want to make sure that what I call the "Underlying Trend", is going up. This is the strongest trend for any particular stock, If I'm looking to buy and I see that the stock I am looking at is in a downtrend or sideways on the weekly chart I will just move on to the next one. I wont even consider looking at the daily charts because the underlying trend is going against it.
I use the trends on a 6 month or 3 month daily chart to pick an entry or exit point. When a stocks underlying trend is in a strong trend, the daily charts cant break through it until the trend slows, than it will take time for the daily charts to turn around the weekly chart.
Now picture a 200 pound man walking down the street as the 20 day moving averge(dma), now picture a 30 pound kid(1dma) comming up and pushing on him, the likelyhood of the man being turned around is unlikely, now add 4 more kids pushing on the man, the 5 kids can slow him down but probably not turn him around, add another 5 kids now its more likely that the man will weaken and slowly start to go the other direction. But the man is still strong, and can push the kids back some, so we add 10 more kids, total of 20, once the 20 kids start pushing on him the man can no longer hold up and will turn around and go the other way. This is the very basics behind the 5/10/20 method.
I hope that made sense.
