How to Buy the Right Stocks… At The Right Time!

During the recent Wealth Expo, I mentioned that many high quality stocks are currently very undervalued as the result of the sell-off stemming from fears of a recession. However, the safest time to buy such stocks would only be when they reverse from a downtrend into an uptrend. As long as the stock price is on a downtrend, it is always wise to avoid buying. In the short term, you never know how low it can go.

So, what signals an uptrend? How reliable are these signals? There are a few indicators I look at to help me determine a trend change.

1) 50 Day Moving Average (DMA) Crosses above 150 Day Moving Average (DMA)

When the 50DMA crosses above the 150DMA, & both MAs start rising, it signals an uptrend (buy signal)
When the 50DMA crosses below the 150DMA, & both MAs start falling, it signals a downtrend (sell signal)

AND/OR

2) Stock price (daily candles) crosses above 200 Day Moving average (DMA)

When the daily candles cross above the 200DMA, & the MA starts rising, it signals an uptrend (buy signal)
When the daily candles cross below the 200DMA, & the MA starts falling, it signals an downtrend (sell signal)

This is what it looks like visually…. 50 DMA (blue), 150DMA (green), 200DMA(red)





The shortcoming of this technique: The 50,150,200 DMA are medium/long term indicators that react more slowly to a trend change. Hence, they may not maximize profits as much as a shorter term MA. However, they are more reliable with less false breakouts.

3) 2 Week Exponential MA (EMA) crosses above 5 week exponential MA (EMA). I.e. Change chart to WEEKLY CANDLES

This other approach uses a shorter term MA. Hence, it results in higher profits. But, it is less reliable and creates more false breakouts.

How it works:
When the 2 week EMA crosses above the 5 Week EMA, & both MAs start rising, it signals an uptrend (buy signal)
When the 2 Week EMA crosses below the 5 Week EMA, & both MAs start falling, it signals a downtrend (sell signal)



How Do the two approaches compare? Well, the 2week/5 week crossover always results in higher profits than the 50/150/200DMA. However, the 2week/5 week crossover creates many more buy/sell signals and more false breakouts. If you have more time to monitor your stocks, use the 2week/5 week. If you have less time, use the 50/150/200 DMA.

In a good quality, upward trending stock like Goodpack, both approaches makes you good profits, and protects you from getting killed on the downside. I drew up a profit/loss table using both approaches on Goodpack. This approach also assumes an initial investment of $10,000.



In an inconsistently performing range stock like Exxon Mobil (XOM), you can see below that the 2week/5week still gives a higher return than the 5-/150/200 DMA, but the win/loss ratio drops to 50%.




Note that although the WIN/LOSS ratio is 50/50 on the EMA approach and 33+/66+ using the DMA approach, you are still profitable if you CONSISTENTLY follow the buy/sell signals as the gains outdo the losses. If you combine Moving average signals with SUPPORT and RESISTANCE lines, you have an even higher probability of making very consistent profits. This is why we spend at least 8-9 hours on technical analysis during Wealth Academy.

Before using these technical-trend identifying techniques, it is very important that you select the right stocks or the right companies in the first place. When you select a high quality company like Goodpack, your rate of return is very high and your Win/Loss ratio is exceptionally high as well. This is where fundamental analysis comes in. In Wealth Academy you are going to learn a 10 step process on how to identify fundamentally strong stocks that are undervalued. When you combine fundamentals + technicals, you will start to make superior and consistent returns from your investments. I look forward to teach you more.