My investment strategy is a technical approach utilizing momentum for short-term “day-trading” profits. Building a portfolio utilizing stocksquest was a good learning experience that allowed for a reflection on past decisions using new techniques. When examining market anomalies, the example of Rambus Inc. was used to illustrate market overreaction. Now Rambus will illustrate technical analysis as the presence of market cycles can aid in the difficult task of buying and selling stock. It is important to remember that the length of a stock’s “dynamic base,” can often indicate the magnitude of a new stage, as seen in Rambus. Once a positive indicator, like a swell in trading volume against a 50-day moving average (as seen in chart 2), occurs the price is most always affected. The Simple Moving Average (SMA) (as seen in chart 1) is a clear-cut and easily apparent technical indicator. A moving average is the average price of a security at a given time. However, to calculate a moving average you must select a time period used to calculate the average itself. In this case three SMA’s are used beginning at ten days and increasing exponentially to a maximum of approximately one month. There is no simple answer to the length of the average, just keep in mind the time period examined, Rambus is a year. The traditional interpretation of moving averages focuses on price movement relative to the average itself. As seen in chart 1, investors are typically “bullish” when the price moves above its moving average (yellow) and “bearish” when the price falls below its moving average (red). Moving averages are also very useful in smoothing noisy data. Some technicians believe that more weight should be attributed to more recent price action. This seems very reasonable so, an analysis was conducted on chart 3 illustrating in three ways the divergence of daily stock movements. Note the red line, the Exponential …
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