Learning To Use Moving Averages

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Moving Averages (MAVG)

Moving averages are very popular and many, many investors and fund managers pay attention to them.  Moving averages takes the price over “X” period and averages them out.  This could be over 10, 20, 50, 100, 200 days.  These averages help you identify the trend of stocks. In an upward trend moving averages follow the stock (are under the stock price). In downward trend these moving averages are above the stock.  Thus, crossing of price and MAVG are crucial trigger point, especially to most technical traders.  There are two main type of moving averages. Exponential, which will have current periods weighted more heavily and simple where all price points have equal weight.  Main point to keep in mind here is if the moving average is below the stock price the stock is bullish and if the moving average is above the stock price than the stock is bearish.

In this ARLP chart you will see that when moving average is mostly under the stock the stock is on upward trend, when the moving average makes its way above the stock the stock is falling or on downward trend.  Thus, the crucial point is when the moving average is crossing the stock price.  This is when buying and selling happens.