Technicals
A moving average is an important part of technical analysis, as it tells how the stock has reacted and how it might react in the future. It shows trends as they change and offer clues for profitable entries and exits into trades.
There are two types of moving averages:
A simple moving average is the average price over a specific period of time. For example, a 20-day simple moving average is a line that shows the average point at which the stock has traded over the last 20 trading days. Simple moving averages are most helpful when used with longer trends. The most commonly used simple moving averages used are the 100- and 200-day simple moving averages.
An exponential moving average has more weight placed on more recent trading days, which can make it more relevant for shorter trends. The most common exponential moving averages used are 10-day, 20-day and 50-day exponential moving averages.
When placed on top of a price chart, moving averages can signal new trends when they cross each other. When a shorter moving average crosses through a longer average, it could indicate a signal to buy the stock. When a shorter average crosses down through a longer average, it could indicate a signal to sell.
Moving Averages info by BetterTrades Charts
Moving averages can mark the beginning and end of a trend. They can be used in place of trendlines, which are difficult to draw with complete accuracy. They identify major support and resistance levels and provide an easy way to set stops.
