Forum Archive Index - June 2003

[Phaedrus <Phaedrus@techemail.com>]

Snoopy,
       I must challenge your statement that ".....If however, you were simply a 
trend follower ..... you were always going to lose by selling out at $4.20 or 
so."
 Let me assure you that NO trend follower would have been selling at $4.20! 
Most trend followers would have sold at +/- $7.30 about a year ago. 
 On the attached chart I have plotted a range of moving averages. Those 
interested in more active trading would use a short term moving average. Very 
conservative individuals interested in long-term investment commonly use a 200 
day ema to keep them on the right side of major trends.
 The chart shows a classical Price/Volume Climax. These usually mark 
significant turning points, and that was certainly the case here. At times of 
climaxes such as this, moving averages can get left behind to some extent. One 
way to handle this is to use a volume adjusted moving average. All moving 
averages use some type of weighting scheme to "average" the data. Exponential 
and weighted moving averages assign the majority of weight to the most recent 
data. Simple moving averages assign the weight equally across all data. 
Variable moving averages assign the majority of the weight to the most volatile 
data. Volume adjusted moving averages assign the majority of weight to the 
day's with the most volume. This makes them more responsive when trading 
volumes are high. The chart shows a 140 day volume adjusted moving average with 
a Green arrow marking its Buy signal. The Blue arrow marks where the new 
uptrend began - many would have been waiting for that point before buying. Some 
would have bought on the strength of the Price/Volume climax alone. The Magenta 
arrow marks the 60 day ema crossover Buy signal. 
 This chart illustrates clearly how the use of trend indicators keeps you in 
when the trend is up, and out when the trend is down. They all gave timely exit 
signals well before the meltdown, and kept you out while WHS continued to fall, 
dropping over 40%. 
 Historical support levels were clearly respected here, reconfirming their 
influence as they marked prominent pivot points - often right to the cent.
 Note how during the current uptrend, volume on Up days (green) is clearly 
higher than on Down days (red). Note also the increasing volume trend of the Up 
days. These are signs of strength in an uptrend.

              Phaedrus.

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