Best Moving Average Secrets

One of the most popular technical analysis indicators are simple moving average, also known as SMA, if you learn to use them properly, they can be a very useful tool to help you make a good trading decisions. 

The 50 simple moving average, or 50 SMA, is simply the sum of the last 50 values for each period divided by 50, this is a moving window, as time goes by so doing the average. Note that I used the word period, because this indicator is working on a deadline in exactly the same way. 

It can be used on a monthly, weekly, daily, every hour, 30 minutes, 15 minutes, and at whatever time you wish to monitor and trade. Although SMA is the most commonly used is the exponential moving average, or EMA. This is a weighted version of the formula using mathematical exponent function to place greater emphasis on the newer values, it has the effect of slightly faster, on average, that many companies prefer. 

The reality is that it probably does not matter if you were using SMA or EMA, it is crucial that you use one or the other, and then be very consistent with it. Do not switch between them, it is more important that you learn to trust your chosen indicator, so a small difference in its value. 

The simple moving average is primarily used to determine what the current trend in the stock, depending on the value used there could be a short, medium and long term. An important point to note is that the moving average is really only useful when the stock is trending view, if the moving average is flat, ie horizontal on the diagram can become very worried, is this a good time to not trade. 

The general rule is that if the current price is over SMA trend is up, if below the trend is down. This is very important to know because it represents the basic development and trade with the trend. 

In the short term, the trend for many companies want to use a 5-8 SMA or EMA, here is a commercial secret, never trade again in the direction of short-term developments, it is really just common sense when you think about it. 

Moving average can often act as support or resistance, many companies are using 15, 21 or 30 SMA for this purpose. 

There are several other very important moving average, you need to know about, they are 50, 100 and 200 SMA, and especially the weekly and daily charts. A lot of big players in the market, mutual funds, investment banks, etc. use 50 and 200 SMA as support and resistance, if they decide to buy or sell based on these you should follow suite, the 100, to a lesser extent. These are very useful in average to see if you matched the EFTA as an oil ETF. 

A useful tip is that when a stock breaks through a moving average, it will often go all the way to the next, for example, if a stock breaks the 30 can move to the 50 before finding some support or resistance.