Large Stocks 20/50/200 Investing Strategy

STRATEGY DESCRIPTION

If you’re an investor seeking to streamline your investing decisions by leveraging historical price data, then this strategy might fit with your investing style. This strategy, firmly rooted in technical analysis, can provide clear signals and help mitigate risks, which may lead to more successful investment outcomes.

The objective of this strategy is two-fold: one, to identify stocks in a strong upward trend, and two, to provide clear entry and exit points. When a stock’s price crosses above these moving averages, it may be a good time to buy. Conversely, if it drops below these averages, it may be time to sell.

While it’s challenging to pinpoint a precise success rate due to the diversity of market conditions and individual stock performance, this strategy is supported by significant empirical data. Historically, stocks trading above their key moving averages have demonstrated a propensity to continue their upward trend.

WHAT YOU WILL LEARN

In technical analysis, moving averages are used to smooth out price data and identify trend direction. The 20-day, 50-day, and 200-day moving averages represent the average closing prices over the past 20, 50, and 200 trading days, respectively. The shorter the time span, the more sensitive the moving average is to daily price changes.

Our strategy operates on a simple principle: it’s generally a bullish sign when a stock’s price is above its 20-day, 50-day, and 200-day moving averages. This position indicates a strong upward trend, suggesting that the stock has robust positive momentum.

Implementing stop-loss orders can be an effective risk management tool. You might place a stop-loss order slightly below the moving average line to protect against significant loss if the trend reverses. In case the stock price continues to rise, consider using a trailing stop-loss, which adjusts with the increasing price, locking in profits and limiting downside risk.

LEARNING OUTCOMES

Investing doesn’t have to be complicated. With strategies like “Prices above the 20-day, 50-day, and 200-day Moving Averages,” you can leverage historical price data to make more informed decisions, and potentially, to increase your wealth. 

This strategy shows you the dynamic between the different moving averages and how to use then collectively to get a clear picture of the price movement. 

The operation of a stop loss is also a critical learning point that you can bring to other strategies.