Simple usage of moving averages

Moving averages are a very popular technical indicator and a very powerful tool used in stock chart analysis.

Let’s start with calculation principle.

A moving average is a curve that is plotted to the chart. The value of the last plotted point is the average based on the last x values of the price. When you learn about 20 days of a moving average, it means that it used the last 20 days for calculation of the last value.

The most common types of moving averages are simple moving averages and exponential moving averages. The difference between them is only in the principle, that exponential averages also add weight to values. It means that yesterday’s value is more important than the value from the day before yesterday.

So how it can be used ?

As moving level of support or resistance

Look at the chart below:

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

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

! My stock market chart tips:

choose color as you like

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

The second important usage of moving averages is that
they can help you to identify trends.

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

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