A moving average is a popular statistical calculation used in the security market to analyse price trends and patterns for a particular time period. It is a lagging indicator that smooths out price data in order to determine the underlying trend. Moving averages are valuable tools for technical analysts and traders because they provide information about potential trend reversals, trend strength, and support/resistance levels.
There is no magical Moving average period. Use of any moving average period will provide similar results. For example both 60 day moving average and 70 day moving average will provide similar results but will give buy/sell signals at slightly different times. The key is to stick to one MA otherwise your trade can get messed up. One of the common ways to choose a MA is to divide the period of interest by 2(two).
For Example, A trader looking at a stock movement for 40 days then he will choose a 20 day moving average is suitable. If you are looking at a stock movement for 20 days then a 10 day moving average is suitable and so on. Generally it is preferable to stick to 15, 50, 100 and 200 days moving averages as they are used by lots of big investors and market reaction to these averages is more likely.
Suitable Moving Average As Per Trading Style
Disadvantages of Moving Average
Although they are highly simple to use and plot in our system. But like everything, Moving Average do have certain drawbacks to deal with some of the disadvantages of Moving Averages are:
Due to the above shortcoming analysts have designed a more complicated yet effective way to deal with price and moving average. One of them is Exponential Moving Average.
Moving Average Screeners to identify stocks that have given false breakdown and indicate potential bullish reversals.
ScreenersMoving Average Screeners to identify stocks that have given false breakout and indicate potential bearish reversals.
ScreenersMoving Average Screener to identify stocks that have Bounced Back from support and indicate potential bullish trend reversal.
ScreenersMoving Average Screener to identify stocks that have Bounced Back from resistance and indicate potential bearish trend reversal.
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