In the bull run that we are in, pullbacks/corrections are considered counter-cyclical moves.We will, with the help of SIMPLE MOVING AVERAGES (SMA), try and define, short, medium and long term trends of XJO on the second chart in a simple and acceptable way. Word of caution, I avoid using moving averages in a range bound markets. There must be trend like the one that we have now.
First, lets focus on this daily chart of XJO and add a SIMPLE 10 PERIOD MOVING AVERAGE ,which is shown in GREEN. Where is the PRICE ACTION in relation to this SIMPLE MOVING AVERAGE ? Below the moving average at the close yesterday (13/01). What else did we get from the price action when this happened ? A COMPLEX BEARISH PIVOT POINT. What does all this mean ? The way that I read this, over the next 5 – 10 days, we are likely to be correcting either in the form of a flat (flat meaning trading range) or a pullback.
As for the volume, OBV at the bottom window has also confirmed a lower trough but still above the trend line which may be worth noting.
Same chart with couple of extra simple moving averages added below. The value of the moving averages are 10 (Green), 50 (Blue) and 200 ( Red). All may be used to define a trend. 10 Period short, 50 Period medium and 200 Period long term trends. Not only this, treat each as a MEAN and remember that the price action always reverts back to the mean. This may be by time or in the form of a pullback.
Lets define the trend of XJO on this Daily Time Frame with the help of these three moving averages now :
SHORT TERM TREND : DOWN
MEDIUM TERM TREND : UP
LONG TERM TREND : UP
I also know that chart reading can not be based on BLACK and WHITE rules and there are shades of GREY in between. This said, I also know that 50 and 200 period moving averages are well observed and used within the broader TA community in defining a trend. As for the 10 period, that is what I like to use. 10 period may be altered slightly. But try and stick with a ratio of 1:4 or 1:5.
Can we also see how far away we are from the medium ( 50 Period) and long term (200 Period) means after the so called Trump rally ? I doubt that XJO would have been in a different position had Hillary won.
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