Market Timing. Signals Nasdaq 100, QQQQ, technical analsysis, trading system, msft, nasdaq 100 index, trading
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NASDAQ 100 Trading System
Description: How a NASDAQ 100-based technical analysis can be used in a trading system that was developed to trade stocks from the NASDAQ 100 index basket.
A knowledge of the general direction of the market that can be obtained only from the index analysis may give a powerful tool to the investor with which to improve his trading, even if he trades only stocks and does not trade indexes at all.
A simple trading system could be built on the basis of the index analysis and applied to the stock trading. For instance, by knowing the results of the technical analysis applied of the NASDAQ 100 index, a trader can make a more informative decision about trading MSFT - Microsoft corporation stock that belongs to the NASDAQ 100 index. Including an index--based technical analysis in a stock trading system can reduce the number of lost trades and improve the system's profit. Below are rules for MSFT trading based on a combination of the NASDAQ 100 index and the MSFT stock technical analysis:
When the NASDAQ 100 technical analysis results point to a higher probability of a bullish trend, then:
- If the results of the MSFT analysis predict an upward movement (in the same direction as the NASDAQ 100), a trader may buy the stock;
- If the results of the MSFT analysis predict a downward movement (in the opposite direction to the NASDAQ 100), a trader may stay in cash and wait until both analyses point in the same direction.
When the NASDAQ 100 technical analysis results point to a higher probability of a bearish trend, then:
- If the results of the MSFT analysis predict a downward move (in the same direction as the NASDAQ 100), a trader may sell the stock;
- If results of the MSFT analysis can predict upward move (in the opposite direction to the NASDAQ 100 analysis), a trader may stay in cash and wait until both analyses point in the same direction.
Basically, in a few words, the system rules are to:
- buy only when the results of the stock and the results of the analysis of the index (in which the stock is included) point to an upward move for this stock and the index;
- sell only when the result of the stock and the results of the analysis of the index (in which the stock is included) point to a downward move for this stock and the index.
It becomes evident that each stock trading system should have elements of the
index analysis. By knowing the general market direction, a trader will not be
surprised if his/her stocks decline when all technical indicators applied to
that stock indicate that it should be higher. If the market is strong, even a
weak stock will increase its value and, if the market crashes, your stock (no
matter how good it is) will probably fall as well.
Use of an index-based technical analysis may provide safer trading, may help to
avoid uncertain trades, and may show how much to invest in a trade. Yes, it's
more complex to analyze stock and indexes than to focus on stock analysis only,
but if it was easy, everyone would be a winner...
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