Using moving averages is the most basic trading technique I can teach new traders. Whenever I encounter someone who lacks the time to actively follow markets and has little experience with technical analysis, I teach them this method. Fundamentalists who still believe in technical analysis but lack the time or expertise to carefully examine the charts may find this useful. It’s easy to determine whether to buy, hold, or sell a stock by simply glancing at a few colored lines.
What is a moving average anyway?
The name speaks for itself. It is the stock or index’s average closing price over a specific period (it is also possible to compute the moving average using the high, low, or open prices, but the closing price will do). The 50-, 100-, and 200-day moving averages are often used. The stock’s average closing price over the previous 50 days is the 50-day moving average. This moving average changes as each trading day progresses by replacing the value of the oldest closing price with current data.
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