{"id":131901,"date":"2018-08-13T20:59:05","date_gmt":"2018-08-14T00:59:05","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=131901"},"modified":"2018-08-13T20:32:53","modified_gmt":"2018-08-14T00:32:53","slug":"moving-averages-help-you-define-trend-heres-how","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2018\/08\/moving-averages-help-you-define-trend-heres-how\/","title":{"rendered":"Moving Averages Help You Define Trend \u2013 Here\u2019s How"},"content":{"rendered":"
August 13, 2018<\/div>
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This simple moving average “works equally well in commodities, currencies, and stocksquot; <\/span><\/h3>\n

By Elliott Wave International<\/span><\/h3>\n

The “moving average” is a technical indicator of market strength which has stood the test of time.<\/p>\n

Over 30 years ago, Robert Prechter described this indicator in his essay, “What a Trader Really Needs to be Successful.”<\/strong> What he said then remains true today:<\/p>\n

…a simple 10-day moving average of the daily advance-decline net, probably the first indicator a stock market technician learns, can be used as a trading tool, if objectively defined rules are created for its use.<\/p>\n

So, what is<\/strong> a moving average?<\/p>\n

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Learn How You Can Find High-Confidence Trading Opportunities Using Moving Averages<\/strong><\/p>\n

Moving averages are one of the most widely-used methods of technical analysis because they are simple to use, and they work. Learn how to apply them to your trading and investing with this free 10-page eBook from Trader’s Classroom editor Jeffrey Kennedy.<\/p>

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Begin to improve your trading and investing with Moving Averages today! Download Your Free eBook Now<\/strong><\/a>.<\/p>\n

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Elliott Wave International’s Jeffrey Kennedy, a 25-year veteran of technical analysis, provides an answer:<\/p>\n

A moving average is simply the average value of data over a specified time period, and it is used to figure out whether the price of a stock or commodity is trending up or down.<\/p>\n

One way to think of a moving average is that it’s an automated trend line.<\/p>\n

Kennedy offers an array of examples and insights about moving averages in the instructive guide, “How to Find High-Confidence Trading Opportunities Using Moving Averages.”<\/strong> Below, you see some of Kennedy’s charts.<\/p>\n

Let’s begin with the most commonly-used moving averages among market technicians: the 50- and 200-day simple moving averages. These two trend lines often serve as areas of resistance or support, levels the market needs to “respect” in order for the trend to continue.<\/p>\n

For example, the circled areas in the chart below show you where the 200-period SMA provided resistance<\/strong> in the DJIA’s rally back in April-May (top circle), and the 50-period SMA provided support<\/strong> (lower circle):<\/p>\n

\"50and200DayMovingAvg\"<\/p>\n

Let’s look at another widely used simple moving average which “works equally well in commodities, currencies, and stocks,” according to Kennedy: the 13-period SMA.<\/p>\n

In the sugar chart below, prices first crossed above the red SMA line, which led to a substantial rally. The circled area shows you the first time the price crossed below the SMA, which came to indicate a change in trend from bullish to bearish:<\/p>\n

\"Sugar13MovingAvg\"<\/p>\n

Kennedy’s “How to Find High-Confidence Trading Opportunities Using Moving Averages” <\/strong>also informs you about a useful tool to help you avoid “whipsaws.”<\/p>\n

Indeed, the first two chapters reveal:<\/p>\n