Moving Averages are really powerful. . . !
Can you believe they are...
Moving average(MA) is one of the oldest indicator. Lot of people (including me) would reject the idea that such a simple indicator can be of any use in modern day considering availability of advance computer tools.
I came across free training videos of Oliver Velez who explained on how to use it. When I back tested his logic I was really surprised..
Since then I have kept 20SMA and 200SMA as default on my chart. Best part of this concept is, it works on any time frame.!
MA can answer following key questions which helps anyone become good trader/investor..
Q1. Is the stock trending? and What is the direction of trend.?
A1. If 20MA is flat stock is not trending. Direction of 20MA is direction of trend.
Q2. How old is the trend. (if trend has just started I can board it and if it is too old I will not)
A2. If 20MA is not too far from 200MA trend has just started. If 20MA is too far from 200MA be alert trend might be matured.
Q3. Am I buying in value zone so that my SL is small.?
A3. Buy when stock retraces near 20MA.
Q4. Am I exiting at a value where I have got good amount of move. So that my profits are much higher than losses.
A4. Exit when stock is far away from 20MA.
I have marked all above on these chart for easy understanding.
As we can see FAR and NEAR are relative terms. Hence it takes good amount of practice to grasp and trade this concept.
Considering volatility lot of whipsaws can happen in intraday and daily time frame. So I started using it on weekly time frame and started getting good results with holding time of 3~10 weeks.
However once you are confident in your stock selection criteria this is good way to ride a trend.
We can compare trading using MA to flying kite. It is simple but not easy. One need to practice to master the skill.
One need to get feel direction and gust of wind,
Understand behavior of kite and
finally time the action to fly kite.
Hope this post will help you appreciate this oldest indicator...
Moving average(MA) is one of the oldest indicator. Lot of people (including me) would reject the idea that such a simple indicator can be of any use in modern day considering availability of advance computer tools.
I came across free training videos of Oliver Velez who explained on how to use it. When I back tested his logic I was really surprised..
Since then I have kept 20SMA and 200SMA as default on my chart. Best part of this concept is, it works on any time frame.!
MA can answer following key questions which helps anyone become good trader/investor..
Q1. Is the stock trending? and What is the direction of trend.?
A1. If 20MA is flat stock is not trending. Direction of 20MA is direction of trend.
Q2. How old is the trend. (if trend has just started I can board it and if it is too old I will not)
A2. If 20MA is not too far from 200MA trend has just started. If 20MA is too far from 200MA be alert trend might be matured.
Q3. Am I buying in value zone so that my SL is small.?
A3. Buy when stock retraces near 20MA.
Q4. Am I exiting at a value where I have got good amount of move. So that my profits are much higher than losses.
A4. Exit when stock is far away from 20MA.
I have marked all above on these chart for easy understanding.
As we can see FAR and NEAR are relative terms. Hence it takes good amount of practice to grasp and trade this concept.
Considering volatility lot of whipsaws can happen in intraday and daily time frame. So I started using it on weekly time frame and started getting good results with holding time of 3~10 weeks.
However once you are confident in your stock selection criteria this is good way to ride a trend.
We can compare trading using MA to flying kite. It is simple but not easy. One need to practice to master the skill.
One need to get feel direction and gust of wind,
Understand behavior of kite and
finally time the action to fly kite.
Hope this post will help you appreciate this oldest indicator...
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