Simple usage of moving averages

Moving averages are very popular technical indicator used in stock chart analysis. And it is also very powerful tool.

Let´s start with calculation principle.

Moving average is a curve which is plotted to the chart. value of last plotted point is average based on last x values of price. When you hear about 20 days moving average, it means that it use last 20 days for calculation of last value.

Most common types of moving averages are simple moving average and exponential moving average. Difference between them is only in the principle, that exponential average take also weight to values. it means that yesterday value is most important then value from one day before yesterday.

So how it can be used ?

As moving level of support or resistance

Watch chart below:

To plot moving average on chart you need to define period of moving average. I like to use 20day exponential moving average (blue on chart above) , 50day exponential moving average (green) and 200 day simple moving average (pink)

Use type and periods you like, but these values (20,50,200) are most used and I find them good enough for stock chart analysis.

! My stock market chart tips:

choose color as you like

for chart of stock day trading system you could use lower periods (e.g. 9 period MA)

Second important usage of moving averages is that
they can help you to identify trend.

This type of usage of moving averages is described on my pages about uptrend , downtrend and trading range.

Return from Moving averages to stock chart analysis

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