Mar 20, 2020

PSEi: Golden Cross vs the Death cross

As a trend follower, I mainly rely on moving averages to identify trends in stocks. Reasonably, I'm also using the same tool in assessing the general market's trend. One traditional moving average signal that I'm using to identify longer time-frame trend of the PSEi is the 50 and 200 simple moving averages crossover.

A GOLDEN  CROSS (50 sma crossing above 200 sma) indicates a long-term bull market going forward, while a DEATH CROSS (50 sma crossing below 200 sma) signals a long-term bear market. Either cross may occur as a signal of a trend change, but they more frequently occur as a strong indication of a reversal that has already taken place. I use this moving averages to decide whether I should have some position or not, as well as determining the percentage I'm willing to risk in every trade. Mix in volume and you'll have a simple but very reliable signal to use. As always, for me price and volume is king, the rest are just noise. A simple tool to clearly see the market's direction (up, down, or sideways).



Notes: 
I'm only in the market right after the GOLDEN CROSS. 
I trade normally when prices above 50 sma. 
I lessen risk tolerance when prices go below 50 SMA.
I go all cash and wait in the sidelines when DEATH CROSS happens.

This strategy has saved my portfolio from big losses during big market dips. Additionally, on  long up trends I can confidently let my profits run as long as my moving averages are pointing up. Take note though that I only use this to assess the general market's trend.