Moving Average Basics
A Moving Average is the average asset price over a certain number of days. Exponential Averages are more complicated and weighted, reacting faster to price changes and give a great insight to the here and now. Time goes by, indicators come and go… but moving averages are truly the Gold Standard of Technical Analysis.
Bread and Butter Moving Averages
12 and 26 Exponential Moving Averages (12 EMA and 26 EMA)
These two give me the best insight of what’s going on in the here and now and ability to see trends spreading from smaller time frames to larger ones very quickly and easily. The 12 ema and 26 ema are also excellent pull back support or relief rally resistance, providing easy entry targets.
50 Moving Average (50 MA)
The 50 daily MA is my Uptrend Defense Line. If I am long a stock, I look for it to hold the daily 50 MA in a pull back. If it cannot, I exit in profit and look for a better entry or a reversal in the trend to take place. Conversely, a bearish stock that bottoms and is able to close above the 50 Daily MA is a good reversal signal.
200 Moving Average (200 MA)
I see the 200 Daily Moving Average as the “last call at the bar”. In a bull trend, this is a major support! In a bear trend, it is a major resistance. If an asset cannot hold the daily 200 MA, get out! If it crosses above, do not be short.
When the daily 50 MA crosses above the daily 200 MA, this is a very bullish move referred to as a Golden Cross. When the daily 50 MA crosses below the daily 200 MA, this is a very bearish move referred to as a Death Cross. Both are excellent swing trade opportunities so trade accordingly.