Every now and then you will find a unique point on a chart that you may want to avoid. As technical trader you spend your time trying to find just the right entry point with the least amount of risk. You are also looking for that entry point to be just before the huge profit comes your way right? Well, today we will focus on one particular area that you will certainly want to avoid as it tends to provide low returns and a very low level of accuracy.
When a stock (or market) finds itself in between the 50 day simple moving average and the 200 day moving average this is known in the trading world as "no man's land." It is a rare time where it seems that no one knows what will happen next. You typically will see a stock, or market chop around sideways in what traders call a base. You could also see many different failed patterns that are normally high odds, and profitable entry points.
One great example of this is a recent one and happened to occur on the S&P 500
When the SPY moved above the 50 day moving average it then began to show signs of weakness. At this point the bears thought they had the perfect timing to enter their short position and the bulls thought the SPY had run out of steam. Remember that we just came out of the December drop which pulled the markets back over 20% from their highs so investors were still a little on edge.
If you were a short seller you saw a good entry and were proven wrong. Just a few days later the price moved up to the 200 day moving average and you thought again that this was a good entry price only to be proven wrong. The bulls that chose to sit on the sidelines were also left out of the next push up and very likely still on the sidelines.
Take a look back at any stock when it moves between the 50 and 200 day and see if your thoughts or entry areas would have proven successful. Chances are you would have been better off just finding other opportunities instead of jumping in to no man's land.
