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15 WAYS TO TRADE MOVINGAVERAGES BY MRTQ13By nfzrmnon JUNE 17,
2012
1
15 WAYS TO TRADE MOVING AVERAGES
Reading a chart without moving averages is like baking a cake
without Butter or eggs. Those simple lines above or below
current price tell Many tales and their uses in market
interpretation are unparalleled.
Simply stated, theyre the most valuable indicators in technical
Analysis.
You can trade without moving averages, but you do so at your own
risk.
After all, these lines represent median levels where your
competition Will make important buying or selling decisions. So
it
makes sense to Predict what theyre going to do before the fact,
rather than afterward.
Here are 15 ways you can manage opportunity through moving
Averages:
1. The 20-day moving average commonly marks the short-term
trend, The 50-day moving average the intermediate
trend, and the 200-day Moving average the long-term trendof the
market.
2. These three settings represent natural boundaries for price
Pullbacks. Two forces empower those averages: First, they
define Levels where profit- and loss-taking should ebb following
strong price Movement. Second, their common
recognition draws a crowd that Perpetrates a self-fulfilling
event whenever price approaches.
3. Moving averages generate false signals during range-bound
markets Because theyre trend-following indicators that
measure upward or Downward momentum. They lose their power in
any environment that Shows a slow rate of pr ice
change.
4. The characteristic of moving averages changes as they flatten
and Roll over. The turn of an average toward horizontal
signifies a loss of Momentum for that time frame. This increase
the odds that price will Cross the average with relative
ease. When aset of averages flat line Anddrawclose to one
another, price often swivels back and forth Across the axis
in a noisy pattern.
5. Moving averages emit continuous signals because theyre
plotted Right on top of price. Their relative correlation with
price development Changes with each bar. They also exhibit
active convergence divergence Relationships with all other
forms of support and resistance.
6. Use exponential moving averages, or EMAs, for longer t ime
frames But shift down to simple moving averages, or SMAs,
for shorter ones.EMAs apply more weight to recen t price change,
while SMAs view each Data point equally.
7. Short-term SMAs let traders spy on other market participants.
The Public uses simple moving average settings
because they dont Understand EMAs. Good intraday signals rely
more on how the Competition thinks than the technicals
of the moment.
8. Place five-, eight- and 13-bar SMAs on intraday charts to
measure Short-term trend strength. In strong moves, the
averages will line up And point in the same direction. But they
flip over one a t a time at highs And lows, until price finally
surges through in the other direction.
9. Price location in relation to the 200-day moving average
determines Long-term investor psychology. Bulls live above
the 200-day moving Average, while bears live below it. Sellers
eat up rallies below this line In the sand, while buyers come
to the rescue above it.
10. When the 50-day moving average pierces the 200-day moving
Average in either direction, it predicts a substantial
shift in buying and Selling behavior. The 50-day moving average
rising above the 200-day Moving average is called a
Golden Cross, while the bearish piercing is Called a Death
Cross.
11. Its harder for price to break above a declining moving
average than A rising moving average. Conversely, its harder
for price to drop Through a rising moving average than a
declining moving average.
12. Moving averages set to different time frames reveal trend
velocity Through their relationships with each other.
Measure this with a classic Moving
Average-Convergence-Divergence (MACD) indicator, or apply Multiple
averages to
your charts and watch how they spread or contract Over different
time.
13. Place a 60-day volume moving average across green and red
Volume histograms in the lower chart pane to identify
when specific Sessions draw unexpected interest. The slope of
the average also Identifies hidden buying and selling
pressure.
14. Dont use long-term moving averages to make short-term
Predictions because they force important data to lag current
events. A Trend may already be mature and nearing its end by the
time a specific Moving average issues a buy or sell
signal.
15. Support and resistance mechanics develop between moving
Averages as they flip and roll. Look for one average to bounce
on the Other average, rather than break through it
immediately. After a Crossover finally takes place, that level
becomes support or resistance For future price movement
nfzrmn
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