Moving Average
Moving Average
Moving averages give us a different
view of the trend of the market by smoothing out the price data.
It’s usually calculated by using the closing prices.
Using short length moving averages
can give many false alarms so its imperative that we use these
in conjunction with other indicators like
Bollinger Bands.
Using longer moving averages
gives us the bigger picture but usually they only pick up on
the big trends.
The best way to use these is
to use a moving average that is half the length of the cycle
you are looking at.
If you are studying a 30
day chart then it would be best to use a 15 day MA.
Mostly traders will use a 9 & 14 day MA to enable them
to spot any signals just before the market moves.
Chart courtesy of
StockCharts.com
Use the
following when tracking the market when swing trading.
A 200
day MA is popular for tracking longer cycles
A 20
to 65 day MA is useful for intermediate cycles
A 5 to
20 day is used for short cycles
SMA (Simple Moving Average)
The SMA is probably one of the most popular of the moving averages.
The SMA gives us a signal when a stock price crosses the Moving
average line.
We should go long when the price
crosses above the MA line from below
We should go short when the price
crosses below the MA line from above
And again always use the SMA with
other indicators e.g.. Bollinger Bands
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