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HOW moving average help you in trading?

Sunday, January 16, 2011 | | |


What is moving average ?
In market most odiou are very well aware to this concept. It is widely used and basic thing in the course of technical analysis. Always we ignore to simple things, chase behind of hard things. So I like remind you simple but sure working and importance of moving average.
Moving average nothing simple average closing prices. In stock analysis software you ever see with it like (12,26). If you haven't stock analysis software then you can check it on Yahoo Finance also with it's graph facility. Those above two values nothing but time. It may be in terms of minute, day and week. First value is short period of average for above example it is 12 day for me. Second value 26 is longer time period for average.

Most of you are aware about above description. Really what is purpose of those moving averages.

Moving average help us to decide trend of stock or indices. Combination of short and long period can help to change in trend. How ? Let's see when short period crosses to longer period goes downward. Then it says to us that market goes below longer average. So one can understand that trend is down and it is time to in short.
When Short period crosses to longer period of average then its time to buy. Those above two condition are conventional concept. In real there is some what alter. One indication of trend is lagging due to nature of moving average. This signal need confirmation from other signal like RSI and other.

Then what moving average provides?
Moving average give clear view of price without any whip-saw. It very well representation of price with sooth manner.

Moving average is base of various advance indicator like RSI, MACD, EXPONATIAL MOVING AVERAGE.

So I like to say to that before goes advance study of any stock, take moving average in account. It will help you to way of trend whether bullish or bearish.

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