Moving averages are a popular way to signal trends. Combine moving averages and the classic chart analysis of support and resistance for trading mutual funds.
Most simple moving average systems
require one or two additional
confirmation signals to
avoid excessive whipsaw trades.
Such confirmation signals can
be based on features of moving
averages such as the crossover
of multiple moving averages or
the reversal of the moving average
slope. Momentum, volatility, volume and other
nontrend indicators can also serve to confirm moving average
buy and sell signals.
In an effort to develop simple and robust stock and mutual
fund trading systems, I have found that combining the simple
moving average (SMA) with the concept of resistance and
support very effective. Here is a mechanical system for
combining these two tried-and-true tools to provide a robust,
minimal-whipsaw, intermediate-term mutual fund trading
system. I have used this system successfully for about four
years to switch emerging markets funds and small-cap funds
to and from a Standard & Poor’s 500 index fund and/or a
money market fund.