Unwittingly Self-imposed Internal Obstacles

stem is simple enough, but some accuracy has been sacrificed for the sake of simplicity.

To start with, a five-week average is short and only likely to detect short-term trends. It is often advisable, also, to calculate 13-week averages and 200-day averages.

In doing this two points must be stressed:

i the average must be calculated, totals are not good enough,

ii the average refers to a halfway point in time. Thus a 5-week average calculated up to 31 December gives you the average as at 21/2 weeks earlier, i.e. 14 December; the 13-week average is for 61/2 weeks earlier, i.e. 15 November; and the 200-day average is for 100 days earlier, i.e. 23 October. This means that the different averages calculated on the same day must be entered against different dates on the table or graph.

So having plotted three different sets of moving averages, which one do we observe? The longer the average the clearer we can discern the trend, but the longer we have to wait before we can act on it. Clearly the question is a trade-off between accuracy and expediency.

In practice, the 13-week average tends to give the most often correct answers and send the fewest false alarms. If you are limited to calculating only one average, that is the one to use. However, the other averages should be consulted. The 200-day average could be regarded as a base line, and the 5-week average as indicating the short-term trend against that line.

If the 5-week average is moving ahead of the 13-week average which is moving ahead of the 200-day average, then buy. If the positions are reversed, sell.

If the 5-week average moves up but the 13-week average moves down, buy, but sell if the 5-week average turns down and the 13-week average carries on down. Hold the shares if the 13-week average turns up whatever the 5-week average does. The 200-day average can be used to verify the accuracy of the trend indicated by the 13-week average.

If the 13-week average moves up, hold the shares. Buy more when the 5-week average also moves up.

The above 'rules'are a little simplistic. With experience, you should be able to adapt them to your own portfolio. The speed with which you react to changes depends on whether you are a cautious or aggressive investor. The cautious investor pays more attention to the longer averages.

Do not forget to study the economy and how your company and its trade is doing within it. Also remember that there is nothing to stop you charting the sha



Setting up in business | Legal Compliance | Keeping informed | Planning for profit | Raising finance |
Managing growth | Buy, sell or merge | Minimising tax | Agreeing tax liabilities | Tax Rates 2015/ 14 | advice

Our Services

Business start-ups, Accounts Preparation, Tax Planning and Advice, Tax enquiry and investigations, Personal & Business Taxation including Income Tax, Self Assessment Tax, Coming into/Leaving the UK, Inheritance tax, Capital Gains Tax, Corporation Tax, National Insurance, PAYE, Value Added Tax Advice and Company Secretarial services

What a Demack Chartered Accountant can do for you?