Ask Colin

I have over the last few months made a close study of Sam Weinstein's book Profiting in Bull and Bear markets He uses the Comparative Relative Strength and buy stop technique etc to buy strong stocks in strong sectors on a breakout. This appears to work very well but every now and then a 10 to 15% retracement will kick one out of the trade. I notice in one of your newsletters that Elder suggests that one should buy a share near the 22 to 30 day MA. This technique presumably stops one chasing a price and paying too much on entry? Please tell me if my interpretation is wrong

You are right that buying near any moving average represents value, whereas buying the extremes away from it is chasing wild prices - the greater fool theory - which is that such a purchase can only be justified by hoping to sell later to a greater fool.

Any moving average system will throw you out of trades sometimes. You need to have a re-entry rule for these situations if the trend reasserts itself.

The 22 day EMA is for short term trading.

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