Due to the discretionary nature of trend lines I trade using moving averages to identify trends along with support, and resistance levels for price action. I am already a rule based discretionary trader so I do not need to add any more discretion into my trading. I like that moving averages are quantified, they are facts not opinions. I am always looking for key levels for buy and sell decisions. Most traders know the 50 day and 200 day simple moving averages are key levels, others use the 10 day and 20 days. In my numerous hours and hours and years of chart studies the 5 day exponential moving average continues to be a key level over and over for the biggest names, both as a support level in sharp up trends and a resistance level during down trends. It is a spot that many seem to make buy and sell decisions with, which is odd because I have never heard of anyone else using it after reading hundreds and hundreds of trading books, trading actively for 14 years, and studying online.
I used it with huge success in the early part of 2012 up trends in both Apple and Priceline and later with Google. it was also my key resistance level when I was short Groupon early in the year. Now since the $7oo peak in Apple the 5 day ema has been the sweet spot for shorts holding above that level for only brief periods of time. While it moves during the day with price since it is such a short term moving average it is not a perfect indicator, I can only get close to it for shorting or wait for it to fall back under the 5 day level to short if it does break above. I think we must retake this line and hold it to even consider going long Apple over night. Right now, but this could change if the market rallies sharply. Currently the right place to go long is $15 to $20 below the 5 day ema and wait for the reversion to the 5 day which usually comes quickly or at worst with in a few days. I personally have trouble doing this because it goes against my nature to catch falling knives, even Apple. I prefer a short into strength as close as I can get to the 5 day ema.
This is just my opinion so do your own due diligence. Of course this is not a sure thing, just a current pattern in the chart. That is why I only risk 1% of total trading capital per trade and know where the price has to go to prove I am wrong. For me this is a powerful tool to see what is really happening outside of our biased opinions.
