In the previous two parts of this series, we have shown how to use the Moving Average Convergence Divergence (MACD) indicator to buy stocks at more opportune prices and to sell while minimizing emotions. The system works well enough using daily prices. It did generate lots of trades and choppiness. Few of us have the time or inclination to continually monitor prices. I have done it before, and it is stressful. There is a way to own stocks with less stress.
One thing we can do is check the weekly and monthly charts before we buy. The MACD works well in strongly trending markets. In yo-yo markets, you will buy and sell too often with small gains and losses. If the weekly charts generate a buy signal, that means our stock is trending higher on a daily and weekly basis. Momentum for higher prices is on our side. By the nature of the longer time frames of weekly charts, we will generate buy and sell signals less frequently. With fewer signals, there is less monitoring, and with less monitoring, less stress.
Let’s look at the NASDAQ weekly chart (symbol $COMPQ on Stockcharts).
In the above chart for the last two years, three green circles are buy points using the 5,34,8 MACD (black line goes above red line). Three red circles are clear sell points (black lines goes below red line). Three purple points are places where the indicator looked to sell and quickly reversed, causing you to sell and buy quickly. The latest sell signal was given in November. No buy signal has been given yet.
Who among us would like selling tech stocks when the Nasdaq was above 15,000, before the prospect of higher interest rates, inflation, and war scared everyone? I would have taken advantage. Cash is trash, some billionaires like Ray Dalio say. What’s better, losing money to inflation at 8% or a stock market crash of 10% to 20%? I would prefer cash in that situation.
On a side note, war sucks. People get hurt and killed. Nothing good comes from it. It does seem we are heading to war in Europe, for the first time in 70 years. I wish the people of Ukraine and Russia well. They’ll need it.
How do we amend our buy and sell rules? Buy when the weekly MACD gives a buy signal (black line crosses above red). Sell when it gives a sell signal (red lines crosses above black). Aim to buy when the indicator is close to 0 or below. Aim to sell when the indicator goes above 0. Keep it simple.
There may be times when the weekly MACD indicator says sell and quickly reverses. The opposite may happen too. While we have reduced emotions with this system, we can’t eliminate them. Use your judgment. If you are unsure, wait. Once a clear direction higher or lower is given you will have more confidence what to do. Waiting is the hardest part. Be patient with yourself and forgiving as you make mistakes.
In our Nasdaq example, we see how the latest weekly sell point would have saved us a lot of stress. The Nasdaq is back to levels seen last April. We don’t know how many weeks it will take for a buy signal. Whether you decide to hold or sell or wait depends on your time horizon. That’s why it is important to have clear financial goals and talk it over with a trusted financial professional.
Note: This is not financial advice to buy or sell specific assets. Consider it purely entertainment, and if you are kind, educational in nature. Everyone’s financial situation is different. Please speak with a proper financial advisor before making investment decisions.
Warmest regards,
smilingdad
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