Tuesday, October 2, 2007

I Love the 20 Day Simple Moving Average

The 20 day average is a favorite of mine. As the center line for the Bollinger Band (or the average of 2 STD of volatility), the average can alert traders when a stock has reached a normal price range, relative to recent movement. This positioning of price in the not too hot, not too cold, but just right range seems to propel stocks that have momentum.

A recent example is LWAY. This stock has been a phenomenal earnings and momentum play. The gigantic breakouts on killer volume should have been enough to earn this stock a place on any breakout trader's watch list.

I missed the first move to 17, but resolved myself to keep watching the stock for a pullback, as stocks that breakout on huge volume tend to keep going up for a while.

I made the first purchase on September 19th, as the price was approaching the 20 day simple moving average. I was immediately rewarded with a huge move. The stock spent the next week or so consolidating the move, and I again waited for the price to approach the 20 day average. On Friday, I added to my position as LWAY look primed to move again.

I was rewarded Monday with a huge move. Today, I sold half my position for a ~30% gain.

I have extended a hypothetical 20 day moving average on the chart so that one might imagine what LWAY will do next.


mdawsz said...

I can't take you seriously without a discussion of intrinsic value.

Anonymous said...

What made you decide to sell at that point?

Woodshedder said...

I sold because the stock was extended way above the upper Bollinger Band, because the overall markets are due for a pullback, and because in the past, LWAY has typically sold off for a few days after such a big move.

mdawsz said...

Not to mention that everyone at the company should be fired, to the man.

mdawsz said...

Frankly, I'm not sure where I'd get the majority of my chuckles if it wasn't for Grant McDonald.

Woodshedder said...

M- that was truly a hilarious era. I miss it, to some extent. More than anything, I want to know what happened to him.