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Tales of a Technician: How I Use Moving Averages

July 18, 2022

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Moving averages are one of my favorite indicators. Here are the various ways I use them.


Moving Averages: Smoothing mechanism

  1. Lagging indicator. Price moves first, moving averages follow.
    1. 20-day SMA: Add up closing price of the stock for the last 20 days and divide by 20.
    1. 20-day EMA: Puts more weight on recent price action, thus more sensitive.
  2. Trend-following indicators: Work best in a trend. Useless in trading ranges.
  1. Helps to confirm the trend. Focus on the direction of the MA movement.
    1. Rising: trend is up
      1. 20 MA (red): short-term trend
      1. 50 MA (blue): intermediate-term trend
      1. 200 MA (green): Long-term trend
      1. 9 MA (pink): really short-term trend
    1. Falling: trend is down
  2. Confirm trend reversals.
    1. Stock price breaks above/below MA
      1. Break above long-term moving average = more significant
      1. 50 MA break is a key signal for me.
  3. Moving averages are catalysts for support/resistance.
    1. Often see support/resistance form at the moving averages.
  4. Moving average crossovers can help further confirm trend reversals
    1. Price break above/below MA first. Then you’ll get an MA crossover.
    1. Stock is in a downtrend and reverses higher.
      1. Price breaks above 9 EMA & 20 SMA
      1. 9 EMA break above 20 SMA
      1. Price break above 50 SMA
      1. 9 EMA break above 50 SMA
      1. 20 SMA break above 50 SMA
      1. Price break above 200 SMA
      1. 9 EMA break above 200 SMA
      1. 20 SMA break above 200 SMA
      1. 50 SMA break above 200 SMA

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One Reply to “Tales of a Technician: How I Use Moving Averages”

  1. RobBernardo says:

    Great Video, Would you say you use the moving averages for possible price levels as much as old support and resistance levels?

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