Validity of 200 dma breakout.....when to buy when to avoid

Usual belief in the market is that buy or look for a buying signal when the price moves above the 200 Day Moving Average and sell or look for sell signal when the price moves below the 200 Day Moving Average......but this is not true all the times.......many times the price moves above 200DMA and again moves below the 200DMA stays at the 200DMA level giving many breakouts in upward and downward direction creating a lot of confusion for traders..........so there must be a VALIDITY CHECK or look at other indicators or other conditions to approve the validity of the breakout and confidently take position or look for a entry signal in the direction of the breakout...................plz help and share your views on the following points......

1. 200 DMA combination with another period ?? DMA which works the best to validate a price break out.
2. How much helpful is the slope of the 200DMA at the time of breakout.
(a). Upward breakout when the slope of 200DMA is DOWN.
(b). Upward breakout when the slope of 200DMA is UP.
(c). Downward breakout when the slope of 200DMA is DOWN.
(d). Downward breakout when the slope of 200DMA is UP.
3. Indicators which are helpful in validating the breakout.
4. Probably the most important HOW TO IDENTIFY FALSE BREAKOUT AND AVOID WIPSHAWS.
5. Help choosing the best one from SMA, EMA, Linear Regression MA, TSF MA, Weighted MA, etc

Moving Averages are the most commonly used and probably the most helpful tool in technical analysis and trading when used in the right way.

Seniors please share what all you can about the above points and if I had missed any condition or point about the MA's please share them too......thanks in advance.

Hello,

ur talking about belief of 200Dma......take any other Ma ,ema ,etc etc .with 20,30,50 etc price will come to it,and rest there or will touch and .go ..why
beacause Ma's are calculated using price action they must have come to it go far to it...u can't do anything about it,its ur belief which MA will work for u.Market runs on belief.

suggestions for ur above raised points...

for1)before validating a price breakout frm 200 dma u need to know in which timeframe ur going to take the trade,and what kind of trader ur.whether ur intraday,swing,or short term or longterm,so that u can take maximum benefit of ur MA.and then u need to check for combination of which other MA crossing suits/gives most crossovers correctly.

for2) if ur considering about the slope of 200dma then it will not favour trend traders,because when 200dma start angling most of the move is over, so decide urself go with the slope or not,or instead go with price crossover its upto u.

for3) Till to date there is no indicator is made to identify the flase breakout before it occurs...as far as iam concerned.

for4) same answer as for 3) and u can't get rid of whipsaws but u can minimize the buy looking at higher time frames, and at the same time if u look at higher timeframes u need to sacrifice some good trades in ur trading timeframes

for5)again its totally depends upon u which MA to use its ur beleif towards the market.if MA gives early entry then it will also gives early exits,if another ma gives little late entry then it will give u late exit,so decide upon ur comfort level because all Ma's use same data, calculation is different that's it.

.................... There is no right way and there is no wrong way of using MA's in Technical Analysis.its ones beleif which MA to use or not.

suggestions to u......

1)first decide wat kind of trader ur.
2)lets say ur a trend Trader then rely on long Ma's (200,150,100,50 etc).
3).if ur shortterm trader then rely on small MA;s(30,20,10,5..etc).
4)if ur swing Trader/breakout trader use donchian channels,or keltner channels or bollinger bands.

blah..blah......

above all its u the most important thing in ur trading not the false breakouts or good breakouts or particular MA. Trading Strategy is least concerned in successful trading,
....its ur psychology(understanding how market works and what to do ,wat not to do). and proper money management/risk management and last is ur trading system or Strategy.

regards,
jahan.