Moving averages are among the most popular and widely used technical tools in trading. Here are 5 reasons why moving averages add a lot of value to your trading and help you make sense of your charts.
1: Direction of the trend and reading market sentiment
This is probably the most common use for moving averages. When the moving average is pointing up and price is above the moving average, it indicates an uptrend – and vice versa. Furthermore, moving averages can be used to gauge overall market sentiment. When the majority of stocks are trading above their moving average, it signals a healthy and bullish environment.
The 4 most commonly used moving averages are:
200 Period Moving Average | Very long term moving average and even the financial media and authoritative finance sites frequently talk about prices approaching the 200 period moving average.
100 Moving Average | Medium term moving average.
50 Moving Average |