Reliance on price charts without moving averages (Moving Averages) like making pastry without butter or eggs. Those simple lines above or below the current price can tell a lot and their use in interpreting the market is really unprecedented. In short, they are the most valuable indicators in technical analysis.
You can trade without moving averages, but working so hard you risk. However, these lines represent median levels where market players take important decisions for the purchase or sale. So it makes sense to predict what they intend to do now rather than later.
Below are 15 principles that you can use to trade the use of moving averages:
1. 20-day moving average is usually short-term trend points, 50-day moving average - mid-term trend, and 200-day moving average is an indicator of long-term market trend.
2. These three moving averages are natural boundaries for price adjustments. In favor of this are two arguments: First, they define levels where profit-making or acceptance of loss should weaken after the strong price movement. Second, their total market recognition inspires players to perform self-realization of this strategy whenever price approaches those levels.
3. Moving averages emit false signals during lateral trade, because they are trend-following indicators, which measure the upward or downward momentum. They lose their effectiveness in markets showing low or absent movement of prices.
4. The characteristic of moving averages change when they are smoothed over. Turning the moving average in the horizontal position indicates a loss of momentum for a given time format. This increases the chances that the price crosses the moving average is relatively easy. When moving averages with different periods are arranged in a horizontal line near one another, price often varies across these lines, creating a "market noise".
5. Moving averages emit continuous signals because they are formed directly on top of the price. Their relative correlation with the development of price changes with each bar. They also demonstrate an active relationship in the form of collection - split all other types of support and resistance.
6. Use eksponetsialnite moving averages, or EMA, for longer time frames, and moving on to simple moving averages, or SMA, for shorter time frames. EMA gives more weight to recent price change, while the SMA seen any action the same price.
7. Short-SMA allow traders to understand how other players will act. Market audience using simple moving averages because they do not understand eksponetsialnite moving averages. Good vatreshnodnevni signals rely more on what they think other market participants, rather than the technical aspects of the evolving situation.
8. Move the 5 -, 8 - and 13-period SMA of the intraday charts to measure the strength of short-term trend. In strong moves moving averages line up and show the same direction. But they split the maxima and minima until the price does not go in the other direction.
9. Deploying the price on 200-day moving average determines long-term investor psychology. Bulls live above the 200-day moving average, while bears live below it. Sellers swallow recovery rallies below this "line in the sand," while buyers come to the rescue above it.
10. When the 50-day moving average crosses the 200-day moving average in either direction, it predicts a substantial change in the behavior of buyers and sellers. When the 50-day moving average rises above the 200-day moving average - this is called "Golden Cross" while bearish crossing (top down) is called "Death Cross".
11. For the price it is more difficult to sneak over the declining moving average. Conversely, the more difficult it is to lower the price in rising moving average than a declining one.
12. Moving averages established at various time periods indicate trend velocity through their relationships with each other. This can be measured with the classic MACD indicator or using multiple moving averages to your charts and see how they converge or diverge over time.
13. Place a 60-day moving average volume price chart below to determine when a session showing unexpected interest. The slope of the moving average also identifies hidden pressures on buyers and sellers.
14. Do not use long-term moving averages to make short-term forecasts, because their data will lag behind current events. The trend can already be mature and nearing its end in this time when moving average will signal to buy or sell.
15. Levels of support and resistance are established by the moving averages as they converge or diverge from one another. Keep track of when a moving average bounce the other, instead of immediately cross it, thus confirming the support or resistance. After finally crossing took place, this level becomes support or resistance for future price movement.
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