In order to trade successfully, you need to learn how to make consistent profits. The ideal way to do this is by buying low and selling high. This is easier said than done. One way to identify these buy and sell signals is to use and interpret moving averages.
A moving average is just that - an average of a stock's price based on a certain time frame. It is a technical trading indicator that shows the direction and strength of a stock's trend over a certain period of time. When the slope of this average is up, then the trend is up. Alternatively, if the slope's direction is down, then the trend is down and the prices are steadily declining.
Using moving averages can be quite effective in identifying buy and sell signals in a trending stock. These averages are generally useless and ineffective if a stock's prices are in a trading range and not trending in any particular direction.
Using a Moving Average To Identify Buy and Sell Signals
A buy signal is generally given if the trend line is sloping upward and the closing price moves above this trend line. A sell signal is given when a stock's closing price crosses below this moving average.
The moving average can be used when shorting positions as well. If it is sloping downward and the closing price moves below this line, then you can sell short. Cover your position when the closing price moves above this trend line.
Play It Safe: Wait For Confirmation Before Entering and Exiting Trades
Conservative traders will generally wait for some sort of confirmation signal before buying or selling their stock. For example, a buy signal would be indicated if a stock closes above the moving average for two or three days, making the upward trend more reliable. A sell signal would be more reliable if the price closes below the downward trend line for two or three consecutive days.
The best way to enter and exit is by looking at more than one indicator. If they are all confirming each other, the signals are much more reliable.
No comments:
Post a Comment