Letters To S&C by Technical Analysis, Inc.
I enjoyed Donald Pendergast’s article on swing trading in the December 2013 issue (“Swing Trading With Three Indicators”). I have a question regarding his entry points. They actually occur the day after the breakout, since in rule 1, he states, “Go long when the price exceeds the upper moving average of the previous trading session.” Is that correct? I just wanted to clarify. Gary
Author Donald Pendergast replies:
Thanks for reading. Yes, if using daily price bars, then using the previous bar’s closing value of the moving average (of the highs or lows) will result in fewer whipsaws and false signals as compared to using the current intrabar value for the moving average, which will fluctuate until the close of the trading session. You may be able to get a better entry price by entering before the bar closes, but you may also be entering a trade that otherwise would not be confirmed at the end of the trading session.
Really, you can use the system on any time frame and the same principle would apply. Again, the important idea with the system is to first visually identify stocks and ETFs that consistently make sustained, smooth swing and/or trending moves.