the year has begun, the New Year holidays have passed, and we are returning to our usual rhythm. I hope that the measured passage of time during the holidays has contributed to the emergence of new ideas and plans for you by Jay Williams wife.
Personally, I just had a wonderful time on the holidays, the weather made me happy with a real Russian winter, I went cross-country skiing, went to the sauna, got out with my wife to the theater, cinema, started looking for a new car, visited relatives, friends and, of course, was able to spend a lot time with my son. I deliberately did not particularly load my head with preparations for new projects, only summed up the results of 2015 and formed goals for 2016. Are you entering the New Year with already realized desires?
The year began with a recession
While we were resting, the economic situation in the world deteriorated significantly. American stock indices lost more than 5% at the opening (a record for 119 years), trading on Chinese exchanges was suspended due to the collapse of the Shanghai Composite stock index, to put it mildly, the growth rates of the Chinese economy are declining and this has a very detrimental effect on the entire world economy.
And, of course, oil dropped to its lowest level since 2004, coming close to $ 30 per barrel, which is terrible for the budget. The ruble, of course, is following the oil and is now trading at more than 76 rubles / dollar.
These are the highest values ever recorded. 80 rubles per dollar was recorded only on December 15, 2014, within the day, but by the close of trading, the rate dropped to 58 rubles. Last year it was about the same picture as it is now. Everything was growing, but starting from February a downward regressive trend began.
Dollar / ruble chart
In December, I felt … that the dollar would grow, now it seems to me that it is approaching its peak and a downward reversal should begin.
What can a private investor do?
This whole situation inspires me, because you can earn faster and more money on falls than on ups. The recessions are sharp and strong, and the ups are smooth. This is what we are seeing now in the stock market. Therefore, I am slowly selling dollars on the exchange at 1-2K, when the rate sets another record. I wrote how to buy or sell currency on the stock exchange in a separate article.
Investing in the stock market
In my opinion, now is the right time to invest in Russian stocks. Look closely. They collapse and come up with very attractive quotes to buy. But how do you know if a stock has bottomed out or will go even lower. No one will undertake to give accurate forecasts, nevertheless, when I was trained in the basics of trading in the stock market from the Finam broker, they taught a simple and interesting indicator. It is called the moving average method.
What is the Moving Average Method?
Wikipedia has the following definition:
Moving average, moving average (English moving average, MA) is a general name for a family of functions, the values of which at each point of definition are equal to the average value of the original function for the previous period. Moving averages are commonly used with time series data to smooth out short-term fluctuations and highlight major trends or cycles  . Moving average is a type of convolution and therefore can be thought of as a low-pass filter used in signal processing.
Not much is clear from the definition, let’s just look at the chart, for example, of the shares of the second bank in the country, VTB, a chart with a timeframe of 1 day
- White candles are days when stocks closed higher (at the end of trading)
- Black– days when stocks closed lower
- red line– indicator moving average with an interval of 5 days (trading week)
- blue line– indicator moving average with an interval of 20 days (trading month)
- red circles– days when the red and blue lines intersect
Note what happens next with quotes when the blue and red moving average lines cross:
- When the red line (5-day average) crosses the blue (20-day average) upward, the stock is trending upward
- When the blue line crosses the red downward, then there is a downward trend in quotes.
Surprisingly, no glitches occur, trends start when the lines cross. The day after the crossing, you need to sell or buy the stocks where the indicator showed.
Why doesn’t everyone use the moving average method?
- Sometimes months can pass between the intersections of the averages, and, as you know, it is very boring to sit and wait, you want to move. Do not count the profit, but press the order button.
- The lines do not cross at the peak of growth or fall of quotations, but when part of the movement down or up has already taken place and the market has taken away part of the profit.
- Every day (ideally) you need to spend time (about 30 minutes) plotting the selected stocks and see if there is an intersection. You need discipline, which is sometimes lame.
- If suddenly an intersection occurs, you need to buy shares at once for a tangible amount. Psychology works, it’s a pity for money, but what if the method doesn’t work this time, what if the money is needed, etc.
The method is suitable for medium-term speculators and investors (investment horizon is more than six months) who do not want to spend a lot of time on the trading process. I like this strategy and plan to test it this year. Yesterday I charted some blue chip Russian stocks.