How to take the final buying decision?

5.3 Timing chart to time your decision

In the stock market it is useful to manage the timing of your investments. This enables you to buy and sell stocks at the most attractive prices and at the appropriate time.

MoneyWorks4me makes this possible by providing simple technical charts. The Timing chart has a Stock Price line and a Moving Average line.

1. Stock Price Line: The Stock Price line indicates the actual closing prices of the stock of the company.
2. Moving Average Line: The Moving Average line is an average of the closing price of the stock of the company computed for a certain period of time- 13 days, 26 days, 50 days or 200 days. It is the moving average because every day it adds one new closing price and leaves the oldest one from the earlier period.

MoneyWorks4me provides four kinds of moving average:

13-day moving average	26-day moving average	50-day moving average	200-day moving average
It is used for getting a short term signal. It gives an early buy or sell signal so that we can get a high return. The risk is very high as it gives many false signals.	It is used together with 13 DMA for getting a confirmation on short term price movements. It gives a late buy or sell signal in comparison with 13-day moving average. Risk of false signals is high.	It is used for getting a medium term signal. It gives a buy or sell signal later than the 13/26-day moving average. So, the return is low in comparison with the one you get by using 13/26-day moving average graph. Risk is less as the number of false signals is less.	It is used together with 50 DMA for getting a long term signal. It gives a late buy or sell signal in comparison with 13/26/50-day moving average. So, the return is lower than both of them. Risk is of false signals is very less.

How do we use moving average graph?

As a value investor we can use the graph at the time of buy and sell to gain from the short term variations in share price. This can be achieved by using the graph as follows:

1. For buy signal the share price must be at or below discount price and the share price line must cut the moving average line from below.
2. For sell signal the share price must be at or above MRP and the share price line must cut the moving average line from above.
3. If the share price is in between MRP and Discount Price, then we should not buy or sell the shares of the company, i.e. we should ignore the buy and sell signals of the moving average graph.