Moving Average (MA) is a very popular indicator to gauge the
trend of stock market. Conventionally,
200-days MA is the barometer of portfolio managers to rebalance their
position. This week, we are going to
demonstrate another usage of MA, as a momentum indicator.
In a previous article, we demonstrated the usage of Fourier
Transform to determine the market cycle of KLCI (Read
more here). From a
medium-term perspective, 61 days is a significant market cycle. As such, a 61-day simple moving average is
plotted on top of KLCI data in the following chart. The black curve is the daily closing price of
KLCI while the blue curve is the 61-day MA.
The Over Sold indicator is computed by studying the gap
between 61-day MA and daily closing price.
If the immediate gap is larger than 70% of the normalized gap over the
observation period, it will be classified as Over Sold, which is plotted as red
in the chart. The Over Sold indicator did
detect several reversal points over the observed period.
No comments:
Post a Comment