By Petra Hess, User Group Leader, Burlington, ON
Since I started to manage my own portfolio years ago, I have searched for an easy to use but consistent way of handling both my short and long-term trading positions. What I wanted was a good stock analysis and portfolio management system and some simple indicators to help me trade my positions efficiently. Vector Vest, in my opinion, is the best program to give the user everything they need including fundamental analysis, technical analysis and the ability to search and sort according to user-defined parameters. The epiphany came when I started using the 3 EMA and 8 EMA crossover points as indicators to trade into and out of positions with the Vector Vest program.
Above, you can see the daily chart set up that I use for the 3-EMA and the 8-EMA crossovers. It’s very basic. I take all the other moving averages and the candles off the chart. I look only at the two moving averages. A buy signal is triggered when the 3-EMA crosses above the 8-EMA. It is important that they have crossed and not just touching. A sell signal is triggered when the 3-EMA crosses below the 8-EMA. This simple technique be can be applied to any chart. You can check your positions or watchlist in just a few minutes each evening. I have developed a watch list of 25 stocks in Canada that I trade regularly. I have found this strategy to be very profitable. In particular, it seems to be an especially effective way to trade ETF’s.
Our Burlington VectorVest User Group has several end-of-day subscribers. As leader, I set out to build some Model Portfolios with the group that would be prudent and easy to manage using the end-of-day program. The search I like to use is ‘Prudent Performers’ within the UniSearch Tab, but I change the sort to VST+YSG DESC from VST DESC. Our ‘sell’ criterion is set at VST< 1. We ran this search at our meeting Jan 2, 2014 and ‘bought’ the top 10 stocks at the open Jan 3. Since then, one stock was delisted due to a buyout. We sold it and replaced it with CNR in February. Shown below is how the portfolio has performed including dividends as of market close November 17th. The portfolio to date is up 29.52% since inception Jan 3, 2014.
A little hard to see on graph, but LNR up 47.17%; ATD.B up 49.91%; OTC up 37.68%; MG up 35.24%; CNR up 31.62%;GIL up 18.12%; WFT up 14.45%; ACQ up 28.85%; GS up 11.39%; and MX up 6.18%.
In August, I was looking for ways to improve the performance of this portfolio with just a little time spent each weekend to manage positions. I went back and manually entered trades once a week using the 3-EMA/8-EMA crossovers on a weekly chart for all 10 stocks in the portfolio. I only checked the charts at the close on Friday of each week. I made the necessary trades that at the open on the following Monday. I decided that if I ‘sold’ a stock using the ‘3 crosses below 8’ criterion, I would not replace it in the portfolio unless the VST had dropped below 1. If VST did fall below 1, I would look for another candidate. However, if the VST remained above 1, I would just watch the stock on the weekly chart and buy it back when the 3-EMA crossed above the 8-EMA. Below is this modified portfolio as of November 17. It is up almost 5% over the buy-and-hold portfolio.
My criterion to buy is that the 3 EMA needs to cross above the 8 EMA and I need to be able to see the cross. I do not do anything if they only touch. See the example below.
This simple trading technique has worked very well for me on short-term positions using daily charts. I now manage my longer-term positions using the weekly charts. Be aware that there will be daily charts that give you far too many buy and sell signals where this technique is not suitable. However, I have found it works well on the majority of the charts.
VIDEO LINK: Here is a link to a video tutorial to show you the set-up for your chart and how I use the 3-EMA and 8-EMA for my own trading. You may click on it or copy and paste into your internet browser.
If you have questions or need clarification on the 3-EMA/8-EMA Crossover, you can contact me at [email protected].