Hey There Team!
First, I want to let you know that I’m seriously stalking some GREAT PLAYS and it looks like I could be sending you my first LIVE ALERT as early as this Thursday Morning! Please keep close watch on your inbox as I’ll be giving you a “heads-up” as soon as I’m sure. Looking forward to it!!!
Today we’re going to talk about the Moving Average (MA)
Why should the Moving Average matter to ME?
Moving Average is an indicator that smooths price data to help reduce the noise around price changes of a stock.
The most commonly used Moving Averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).
The SMA, often shortened to just MA, is calculated as a simple average of a stock price over a certain number of periods.
The EMA places more weight on the most recent stock prices. I could give you the formula here, but since any basic stock chart will show these averages, I’ll let those of you who are really interested in the math do their own research!
Below is a chart of OOIL. I’ve set it up to show the MA and the EMA for 10 days. The MA is the blue line, and the EMA is the red line, both running very closely to the actual stock price. Notice that the EMA is higher that the MA, because recent stock prices are given more weight than those from 10 days ago.
Here is the same chart with the MA and EMA set to 100 days. Notice that the lag created by the extra days is giving a significantly different picture of the stock’s average price.
USING THE MOVING AVERAGES
How can I use the MA and EMA to help me spot trends?
1. MA and EMA lines indicate the true direction of a stock, especially one that is fluctuating frequently. The MA and EMA lines for OOIL above show that despite some significant, though brief, upward movement, the overall price trend has been down.
2. MA and EMA lines can be used to indicate a Support or Resistance Level of a stock. Trades can then be based around those levels.
3. Selecting the timeframe of Moving Averages - Short-term traders will typically use shorter MA and EMA timeframes, because it is important to spot changes in a trend quickly. Long-term traders will typically select longer MA timeframes, the 200 day MA is popular among long-term traders.
The Bottom Line - Moving Averages can be great indicators, but it’s important to keep in mind the built-in lag, even in the faster reacting EMA. Don’t base your buy/sell decision solely on the historical performance of any security - past performance is no guarantee of future performance!
I sure hope this page is helpful!
Stay tuned for my next exciting Alert, coming soon!
You’ll be hearing from me!
Till Next Time,
Michael Reef
yourstockguy@gmail.com
