Watching the Goal Line Stand

  • Posted by
  • on April 29th, 2010

I had blogged this a few months ago about what’s on my screens.  Another thing technicians might think is weird is changing the start date for the stocks I’m tracking.  I know that sounds odd in a world of 10 day moving averages, and 20 day moving averages, etc.  But other than the self-fulfilling prophecy of others looking at it, why should 10 days be a relevant lookback period for a stock?

It’s my belief that in hunting for true alpha, the lookback period CAN’T be the same for all stocks.  Yes, when the market has a significant break or reversal that results in a new bull or bear leg, that date becomes a relevant starting date.  But that’s more of a beta move…by my definition, alpha notes independence.  What bears relevance is whether a major news event exposes latent demand or supply.

By using a specific moving average, you’re allowing one fixed input(lookback period) and one variable input(starting date)…I’m just saying I reverse the process by fixing the starting date and making lookback variable.  I do use the 10 week MA, as I consider that another goal line of sorts…an area where most participants observe and play, making it a robust test of strength or weakness.

Consider my goal line image.  Just like football teams moving up and down the field with ease, markets can swing wildly without making real progress.  Get inside the 20’s, though, and we can separate the real from the fake.  So that’s what I do…I study stocks making a 1 month high or low with tons of volume, and do my best to assess whether the move is real or fake, late or early, signal or noise, durable or fleeting.  I give them a few days(aka, 4 downs) to show me their stuff, and I react accordingly.

This is by no means foolproof, but what it does is give me tremendous confidence in my “defense”, as I know a lot of energy was used by one side in defending or attacking the goal line.  Therefore, that price area should be a strong level of support on a long idea or resistance on a short idea, giving me a real area on which to lean and set my sizing.  By acting after but within hours/days of the “event”, I also reduce the chances of being caught by a fundamental surprise…therefore, I can legitimately play larger.

I don’t expect(or want!) anyone to adopt my odd ways of interpreting data.  I just like to share my tactics, as others have done so graciously.  The key is not to understand why a stock is going up or down…that’s easy, supply and demand.  What’s important is to understand why you are buying or selling.  Not on a whim, but because you’re implementing an edge that has proven itself time and again.  For me, the high intensity battle near the goal line offers the best chance for me to find the clues I seek.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Derek Hernquest Blog