How to Keep Your Profits Flowing in a Volatile Market

Posted on by The INO.com Team

Chuck Hughes' recent guest post received such a phenomenal response from Trader's Blog readers that we decided to bring him back for weekly wrap-up. Today Chuck is going to tell us about a basic trick he uses in volatile markets. Be sure to comment with your thoughts on how to play volatile markets and visit Chuck at Wealth Insider Alliance.

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Since this continues to be the 'year of volatility', let's take a look at how you can continue to go for consistent profits without being stopped out – or wiped out – by whipsaws.

In market conditions like these, I rely on two primary trend indicators...

●  The 50/100-Day Exponential Moving Average (EMA), and
●  The 1-Month Price/20-Month EMA

...PARTICULARLY if I'm taking a short position.

The 50/100-Day EMA trend following system is used to generate buy and sell signals for short to intermediate term trading – in other words, positions that you intend to hold for less than six months.

If the 50-day EMA of the stock is above the 100-day EMA, an upward trend is indicated and a short position should not be taken.

If the 50-day is below the 100-day, then a downward trend is indicated and it's time for step two: Checking the 1-Month Price/20-Month EMA.

The 1-Month Price/20-Month EMA is a major trend indicator used to generate buy and sell signals for long term trading – positions you intend to hold for 6 months or longer.  However, it all serves as a fantastic filter for avoiding whipsaws on shorter term trades.

If this major trend indicator also shows a downward trend, then it confirms the intermediate term trend indicating that stock or index is much less likely to stick you with a whipsaw.  Otherwise, the stock or index is more vulnerable to a whipsaw move and should be avoided.

How well does it work?

As a broad example, consider the S&P 500 Index.  Its 1-Month/20-Month EMA showed bullish from mid-2003 until January of 2008 – meaning it was in a major price up trend. During that four and a half year period, the shorter-term 50-Day/100-Day EMA system issued five ‘sell’ signals, all of which turned out to be losing trades.

These five losing trades could have been avoided if you used the 1-Month/20-Month EMA Major Trend System as a filter, and did not take short trades unless the major price trend was also down.

For a narrower example, consider the first six months of this year.  I used these indicators in my screening process for each of the trades I issued my members.  The result:  42 winners out of 52 for an 80% win rate, an average return of 33.7%, and over $151,000 of profit despite all of the volatility of March's flash crash.

As simple as it may seem, this little strategy has worked wonders for my Cash Flow Trader members and, with a little practice, I'm sure it will help you unlock even greater profits as well, despite the ongoing market volatility.

Yours for life-changing profits,
Chuck Hughes
Editor, Cash Flow Trader

22 thoughts on “How to Keep Your Profits Flowing in a Volatile Market”

  1. I think for the clarification of this massive confusion about 1-Month Price/20-Month EMA
    you should ask Chuck Huges what exactly he meant by that.

  2. Jeremy,

    As a follow-up to the comment by Barb on 8/21: the Chuck Hughes indicators do say EMA rather than SMA (for "1 Month Price" I think he means EMA but it's not clear). I see how to use Marketclub charting for either the 50/100 day EMA or the 1 month/20 EMA, but not both.

    If there is a way, please let us know.

    Somewhat related to the above, I would like to be able to include 4 SMA averages (10, 20, 50 and 200 day) on charts, but there is a limit of 3 for SMA and 3 for EMA. It would be nice to increase the limit to 4. I currently use one of the EMA's to enable 4 in total.

  3. On above comment, did you mean the Exponential moving average? So it looks like this just works on Market club charts as can't set a 1 to 1 on the 30 day, I need 2 numbers. If I set a 30 day on the daily chart then move it to the monthly chart that would be 30 months. My chart setting call for a 2 number setting.

    Thanks
    Barb

  4. Hello Adam,

    I found this blog post very interesting as did others but I too am struggling with how exactly to see the 1 month/20 month EMA on the Marketclub charts. I know you indicated above that it is possible on the monthly chart, but I am yet to be able to figure this out. Please help. Maybe this requires a video.

    Thanks in advance. Love the Marketclub tools

    Andy

    1. Andy,

      Thank you for reading our Trader's Blog. If you have your MarketClub charting set on a Monthly chart the MA's are defaulted to a Monthly MA from the Daily MA's. To set the the 1 month and 20 month all you need to do is reset the study.

      1. Open the 'on chart studies' tab

      2. Open the 'simple moving average' study by clicking on the name

      3. Set period 1 to 1 for 1 month, set period 2 to 20 for the 20 month and you are done.

      Hope this helps you set the MA's

      Cheers,
      Jeremy

      Jeremy Lutz
      Head of Technical Support
      MarketClub and INO.com

  5. How? The EMA drop-down only goes out to 200 days. Even when I am in a Monthly Chart, I am still looking at 200 as days, not months, right?

    I do not see how I can do this in MC.

    Also, let's assume I do figure out how to calculate a 20 Month EMA, and I do the division, what does the number mean? I will get a figure either greater than 1, or less than 1 (fraction.) Are we to assume the author is saying less than 1 is confirmation of a short?

    Please help if you can.
    Thanks,
    Mark

  6. How do I set up the 1 month price/20 month ema? Where would I get the 1 month, is this the ending month price? Would the 20 month be the last price of the 20 months? Thanks for any help in understanding this.

  7. I am also wondering about the one month. I use stockcharts. Would I pull up a monthly chart and see if the candle is above or below the 20 month EMA?

  8. I do not know what is meant by '1-Month Price/20-Month EMA'? I am only familiar with Mata Trader. MA indicator requires to select "period". So what period I need to set for 1 month price and 20 month EMA. Does it mean the MAs with 1 and 20 period or something else? Please can you educate me?

  10. I think I'll use the The 1-Month Price/20-Month EMA as a way to guide my 401K and then use a monthly trade triangle to signal the exact entry day.

    The SPY (SP 500 ETF)shows some funny whipsaw action in JUL using this ... but this confirms my observation that JUL was the month that fooled everybody. The bulls were beating their chest and winning but the bears were shaking their heads and warning everybody.

  11. Based on your world cup portfolio do you inform subscribers on the contract month you are trading?
    Do you trade standard or mini contracts?

    What services are included in your subscriptions relating to commodities.

    1. Francisco,

      Thank you for your feedback.

      Marketclub covers all the futures markets. Depending on your capital you can trade full or mini contracts. Our results are based on a full contract.

      Thanks
      Adam

  14. Can you please give an example of how to calculate the 1-Month Price/20-Month EMA.

    How are the data points determined?

    Thanks

  15. You go to monthly charts, take the one month price and divide it by a 20 month moving average. If you can't do it on MC, try stockcharts or aol finance (where I'm certain you can do it). Then you divide and you've got your #.

  18. How can I show the 1-Month/20-Month EMA on a Marketclub chart? I can't find this drop down.

  19. Is there a way to show the the 1-Month Price/20-Month EMA on a Market Club chart? If not, I suppose you need to manually calculate it and use the data in conjunction with the 50/100-Day Exponential Moving Average, which can be seen on MC charts.

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