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Indicators: Moving Averages

March 20, 2015

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Indicators are tools that you’ll find underneath the candlestick charts. They are charts in and of themselves. Moving averages are what traders call overlay’s. They are lines that are drawn on the candlestick charts. Traders use moving averages (MA’s) to quickly identify the nature of the trend over different time frames.

Trader’s who add MA’s to their charts do so for various reasons. Some traders will use them to help identify trading signals. For example, if a stock has a history of bouncing off of the 20 day MA and rising it may be a reasonable assumption that when the price hits the 20 MA you can look for a trade. As is the case with indicators, you don’t want to use MA’s to produce trades just from their signal alone. If the signal happens in conjunction with other technical analysis signals – pivot points, support and MACD crosses – then it may be extra confirmation to the strength of the trade.

A simpler use of MA’s is to help you quickly identify the trend. There are three MA’s on this chart. Traders would use the 20 day MA to help identify the short term trend of the stock. If the MA is moving up then you can confirm that the short term trend is moving up. The 50 MA would be used to identify the intermediate trend and the 200 MA used to identify the long term trend. These are skill sets you will develop as a trader and be able to do this without MA’s but if you need a little extra help and a point in the right direction adding MA’s to your charts isn’t a bad idea.

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2 Replies to “Indicators: Moving Averages”

  1. Avatar Joan Nee says:

    Thank you Matt. I haven’t paid too much attention to indicators because our Master Trader class focused mostly on trend analysis. So, thanks for putting it all into context.

    1. Avatar Mack Grout says:

      Excellent course on indicators. Perfect with a few paragraphs explaining, then a five minute video with examples. Thanks for laying it outright for us all in a nice concise package.

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