30-week Moving Average (MA) This is one of Weinsteins key principles. In the weekly chart of the XAO above, the blue curve is the 30-week Moving Average (MA). For as long as the price stays above the 30-week MA, and the MA line is heading upwards, Stan says the index (or stock) is rising. But if price crosses below the MA and the MA flattens and heads down, then there could be rough times ahead and it is time to sell. For example, in January 2008 and late April 2010.
on a Weekly price chart
Stage AnalysisThe coloured ribbon across the bottom of the above chart is Weinsteins Stage Analysis ribbon (as applied in BullCharts charting software).
Weinstein said that at any one point in time, a stock (or an index) will be in one of four market stages:
- Stage 1 the Basing Area (also known as consolidation or accumulation phase)
- Stage 2 the Advancing Stage
- Stage 3 the Top Area (also known as the distribution phase), or
- Stage 4 the Declining Stage.
Simple MA or Weighted MA?There is often discussion about whether Stan used a Simple, or a Weighted, Moving Average. Here are some notes with reference to his book.
- Page 13: ...Over the years, Ive found that a 30-week moving average (MA) is the best one for long-term investors, while the 10-week MA is best for traders to use. A 30-week MA is simly the closing price for this Friday night added to the prior 29 Friday weekly closings. Divide that figure by 30 and the answer is whats plotted on this weeks chart....
- Page 25: ...Mansfield charts do not give a simple 30-week MA where all 30 weeks count equally. Instead, they use a weighted 30-week MA where by the most recent action counts far more than the old input. This makes the MA more sensitive to current activity and helps it reverse direction faster. The drawback to their weighted average is that it leads to a few more whipsaws...
- Page 313 includes the diagram labelled Chart 9-2 (shown at right), and provides a detailed explanation of how to easily calculate a 30-week simple moving average (without a calculator or computer) as follows:
To get the first plot for your 30-week MA, simply add up the 30 weeks on your calculator or computer and get the total (853). Put that answer in the total column. Then divide by 30 and you have your starting point for the MA (28.43). In the following weeks, there is no need to repeat the lengthy process of adding up the new 30 weeks. Simply add the 31st week (27.2) to last weeks total, then subtract out the oldest week (the oldest weeks total in this case is 30.0 - remember to cross it out on your data sheet....
Readers are encouraged to study further details in his book,
Secrets for profiting in Bull and Bear Markets (McGraw-Hill, 1988) available from good book shops, including the Educated Investor financial bookshop:- www.educatedinvestor.com.au
Note also that a 30-week WMA appears somewhat similar to a 20-week or 21-week EMA.
It is also interesting to understand that Weinstein developed and tested his approach over a long period of time, and when computers were only scarcely available. And the computers that he might have had ready access to were probably the text-based version (the first incarnation of Windows was available in late 1985 with only a limited range of software available).
Current AnalysisRobert analyses the Australian market on a weekly basis, and includes a weekly update of this type of chart. Toolbox Members can see details and comments in the latest chart in the Toolbox Members Area.
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Last revised: 7 February, 2013.
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