One of the biggest mistakes traders make when adding technical analysis to their trading is they over-complicate the situation.
Investors feel like if they have several indicators on the same chart, then they will be able to filter out false signals and develop a system that is fool-proof. So, they add several different types of indicators to their charts in order to put together the perfect system.
But the perfect system doesn’t exist. The more indicators you put on a chart, the more conflicting signals you have. Then, in the rare instance that all your signals are in line with each other, you end up losing on the trade anyway.
So, what was the point of spending all that time waiting for the perfect storm of several indicators coming together?
The Simple Solution
The truth is that a simple system executed to perfection is the best way to make money. Find a solution that will allow you to understand the state of the market and how a stock’s recent behavior corresponds with its historical behavior. While this may sound complicated, a moving average is a simple way to figure these problems out.
First, a moving average is nothing more than the average closing price of a stock over a given period. For example, the 21 day moving average calculates the average of the last 21 closing prices of a stock. Armed with this information you can make broad-based assumptions.
If the current price is greater than the 21-day moving average, the stock is in an uptrend. If it’s below, it’s in a downtrend.
Plotting a Moving Average
When you plot a moving average on a stock chart, you’re not just putting a single value on the chart. You’re plotting a line showing where this average has been over the last several days. The slope of that line can tell you the state of the market.
The three main states or phases of a market are a bullish trend, bearish trend and range-bound. A positively sloped moving average is associated with a bullish trend, negatively sloped with a bearish trend, and a zero slope or horizontal line points to a range-bound market.
We can find stock ideas to buy very quickly by looking for Zacks Rank #1 (Strong Buy) stocks that are trading above their positively sloped moving averages. You can choose moving averages of different time periods to give you a time frame on the trends you are trying to evaluate.
If you’re looking for short-term trading ideas, you should apply a short-term moving average in order to uncover those ideas. In this article, we’re going to use the 21-day moving average to do so.
You can make this as simple as you’d like or as complicated as possible. When it comes to my trading, I try to keep it simple so it can be repeatable and clear cut for me. Using a simple moving average coupled with our Zacks Rank can help you uncover great stock ideas like this every day.
Jones Lang LaSalle (JLL)
Jones Lang LaSalle (JLL) is a leading full-service real estate firm that provides corporate and financial services, management services, and investment management services to corporations and other real estate owners, users and investors worldwide.
JLL stock, like many others, bottomed out along with the rest of the broad market in mid-October 2014. Since then, a series of breakouts above the 21-day moving average have continued to push JLL stock higher.
The most recent move sees JLL stock getting bids just above $160, which catapulted shares near the 52-week high. Today, the 21 day sits down at $167.93 while shares trade at $173.
Photronics (PLAB) is a leading worldwide manufacturer of photomasks, which are high-precision quartz plates that contain microscopic images of electronic circuits.
A key element in the manufacture of semiconductors and flat panel displays, photomasks are used to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits, a variety of flat panel displays and, to a lesser extent, other types of electrical and optical components.
Shares of PLAB have recently broken out from underneath firm topside resistance at $9.20. The rally through that level was met with very heavy volume, confirming the move higher.
The spike up near $10.40 has paused for several days, giving the bulls a chance to catch their breaths. Important to note is that the push to higher prices has yet to be met by a harsh reversal pattern. A short-term consolidation may continue PLAB stocks searchs for short-term support.
Integrated Device Technology (IDTI)
Integrated Device Technology (IDTI) designs, develops, manufactures and markets a broad range of high-performance semiconductor products and modules.
Applications for Integrated Device’s products include data and telecommunications equipment (such as routers, hubs, switches, cellular base stations and other devices), personal computers and networked peripherals and servers (such as RAID arrays, servers and printers).
Just when it seemed like IDTI shares were rolling over, a move on heavy volume pushed shares up after hitting support at $18. The rally pushed shares above $21 past prior resistance.
With shares trading very close to a 52-week high, volume has increased over the last several days. A positively sloped 21-day moving average provides support down at $21.02.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report.
More From InvestorPlace
- 7 High-Dividend Stocks Far off the Beaten Path
- The 7 Best ETFs to Buy for June
- 7 Big Tech Stocks Worth Your Attention Now