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Using PWA with a 30 day Moving Average

Currently on our website are results from using a 20 moving average setting. Some people have told me that setting is hard to use in part because the bands trend changes so rapidly and the price can move from one action band to another so rapidly.

With the 20 day moving average setting, the MACD is less useful because of the rapid changes, so a person is left to basically respond whenever the price is in a buy or sell band.

Recently we made a change to the MACD settings limits and a person can now set the short average at five days where the previous lower limit was ten days. This helps the MACD to respond more quickly.

An alternative to the 20 moving average setting is the following:

• Centered moving average = 30 days.
• Inner band setting = 20
• Outer band 23 or 24.
• MACD short average setting = five days.
• MACD long average setting = 20 days

 

In the chart just below, the MACD flattens earlier than the ten day setting would have done, by about two days. In this instance the sell signal was very timely.

The next chart is about one month later and shows the MACD with a five day short average again flattening close to the temporary low. As it happened a few weeks ago, the price fell a little further but didn't break our stop line.

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Assuming a buy then or in the next few days, we would want to set the stop-loss line, so we'll make it at about 5% below our purchase. The notion here is to accept a small loss to prevent a large loss should the market turn down abruptly in a major way. Notice that the stop first appears as a red dot and becomes a line as days pass.

The next two charts illustrate using the stop line as a trailing stop to lock in gains. In the first, we find the price has moved up so we set the stop at our purchase level, or very close to it. If the market turns against us, our loss will be less than the 5%. If the price continues to move up, we raise the stop line to lock in profit.

The last chart shows the price having continued to rise and, as it did, we would raise the stop line. Our stop is in place should the price turn down. Also we see the five day MACD short average is flat, so we can respond to that since we have a nice profit; or, we could wait and see if the price goes up further. As it happened, the next day the price fell and the price went below our trailing stop, so selling on the flattening would have been a good move.

Using the stop-loss line as a trailing stop can be a very useful tool, especially in situation where the price has moved far into the sell band and we already have a good profit.

arley