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Reviewing Moving Average Signals
To use a three moving average method for trading SSFs, do the following:
• Compute the three moving average lengths.
• Buy when all three moving averages have crossed in an up
ward direction. (If using one moving average, then buy when
the price closes above the moving average.)• Sell and sell short when all three moving averages have crossed
in a downward direction. (If using one moving average, then
sell when the price closes below the moving average.)• Moving average systems are based on reversals. In other words,
when a long position is closed out, a short position is entered.
When a short position is closed out, a long position is entered.Moving average systems can be valuable to the new trader. Though they may result in larger-than-acceptable risk, they do assist with self-discipline and risk management. Before you consider using moving averages for trading, study this approach very thoroughly because it has its limitations as noted below. There are many variations on the moving average theme. I suggest you familiarize yourself with these before going forward.
TD Sequential countdown | Intraday Charts
When I was a graduate student, I played on the Harvard Ultimate Frisbee team. One of our rivals, Williams College, had an excellent team for some years until most of their star players graduated in the same class. The next year, the Harvard team destroyed Williams. In their dazed and defeated state, the Williams players gathered to regroup. One of the optimistic players said, "We can learn and improve," to which another responded, "But who is left to teach us?" The pessimistic answer: no one.
The financial hangover argument looks at the purchasers of U.S. products and asks who will buy? The pessimistic answer: no one.
To make the effects of financial hangover clear, Figure 4.2 classifies the purchasers of U.S. production. The diagram looks at actual purchases.
For example, the money that the government collects for social security is almost immediately sent back from the government to individuals. Thus, social security taxes collected by the government are counted in the U.S. consumer category. Similarly, U.S. consumers' purchases of foreign goods are not included.
There are four major groups of purchasers of U.S.-made products and services. We'll look at the financial health of these four groups of buyers and see that most buyers are not in a position to increase purchases: (1) U.S. consumers; (2) U.S. businesses; (3) foreigners; and (4) governments.
Consumer spending is driven by both wealth and income. That is, how rich we are and how much we earn.
Because of financial market declines, the total wealth of U.S. families in 2004 was almost identical to that in 2000. 2 Even as wealth has not increased, U.S. consumers have continued to spend. Unfortunately, income growth has also slowed considerably. The average annual growth rate of disposable personal income dropped from 4.0% in the five years ending in 2000 to 2.7% so far in the twenty-first century. 3
So if U.S. consumers are not getting richer, and have less income to spend, is there hope of continued spending? Yes, but it will have to come by decreasing the savings rate. Figure 4.3 shows the savings behavior of U.S. consumers.
From a historical level of around 10%, the U.S. personal savings rate has declined toward zero. While it is possible for the savings rate to decline even further, I read the chart to indicate a possible rebound in savings. A return to a higher U.S. savings rate is a positive development for the long run, but it means that the U.S. consumer is unlikely to be the engine of economic growth over the next few years.
FIGURE 4.3 Americans Do Not Save Very Much
Source: U.S. Commerce Department
This idea that increased savings hurts the economy is known as the "paradox of thrift." Saving money is prudent and good for the individual, but the more people save, the less they buy.
To summarize the state of the U.S. consumer, both wealth and income growth have slowed. For U.S. consumers to continue to support the economy, the savings rate would have to decline even further. If consumers return to their more traditional, higher rates of savings, their rediscovered frugality will place a serious drag on the economy.
Conclusion: The U.S. consumer is unlikely to be a major source of economic growth.
U.S. Businesses
What about investment by U.S. businesses? One of the important factors driving business investment is the amount of idle production capacity. Simply put, companies with idle facilities are not likely to be aggressive purchasers of new equipment. Figure 4.4 shows the percentage of idle capacity for U.S. businesses.
U.S. businesses have about one-quarter of their capacity sitting idle, and this level has increased rapidly since the bursting of the bubble. Companies have enough spare capacity to accommodate years of economic growth without any additional investment.
The two recessions of the early 1980s and 1990s also had high levels of idle capacity. The personal savings rate diagram (Figure 4.3), shows that those recessions ended when U.S. consumers sharply decreased their savings rate throughout the 1980s and 1990s. In previous recessions, high levels of idle business capacity were put to use when consumers increased spending.
Thus, a key to U.S. business spending lies with the U.S. consumer. If consumers increase their spending, business investment will follow. If the U.S. consumer cannot be an engine of growth, then businesses are unlikely to increase their investment spending.
Conclusion: U.S. businesses may follow, but they are unlikely to lead economy recovery.
Foreigners
Rich Dad's Guide To Investing - The Introduction
What Should I Invest In
Pouring A Foundation Of Wealth
The Choice, Rich Dads Lessons On Investing Began
What Kind Of World Do You See
Investor Lesson 3 - Why Investing Is Confusing
Investor Lesson 3 - Why Investing Is Confusing
Investor Lesson 5 - Are You Planning To Be Rich Or Are You Planning To Be Poor
Investor Lesson 6 - Getting Rich Is Automatic If You Have A Good Plan And Stick To It
Investor Lesson 7 - How Can You Find The Plan That Is Right For You
Investor Lesson 8 - Decide Now What You Want To Be When You Grow Up
Investor Lesson 9 - Each Plan Has A Price
Investor Lesson 10 - Why Investing Isnt Risky
Investor Lesson 11 - On Which Side Of The Table Do You Want To Sit
Investor Lesson 12 - The Basic Rules Of Investing
Investor Lesson 13 - Reduce Risk Through Financial Literacy
Investor Lesson 14 - Financial Literacy Made Simple
Investor Lesson 15 - The Magic Of Mistakes
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