MA Usage Guide: Stock Selection Tutorial

What is Fundamental Analysis?

To add a moving average to a chart, simply click the Metrics at the top of the chart, and then select the Move Average.

Setting for the moving averages

All moving averages come with a series of time periods. Typical settings for moving averages:
Long-term trend: 200 days (200 roughly trading days in a year)
Interim trend: 50 days (50 for approximately 2-month transactions)
Short-term trends: 9,10, and 20 days
Traders typically use 2 or more time periods when developing a strategy.

Short-term traders and high-frequency traders tend to use shorter time periods, such as 4 and 6 hours, because their trading time range is very short, usually as low as one minute. As you can see, it is a customizable metric where you can modify its time frame according to your strategy and trading needs.

How to of moving averages

You can use the moving average to identify and determine the potential trend direction. Also, you can determine support and resistance levels and define your entry or exit strategy, and the two widely used are simple moving averages and exponential moving averages. Based on the number of days represented by the setting of the MA cycle that we mentioned earlier, it can be used to identify short, medium, and long-term trading signals.

MA cross-interpretation

Understanding the MA allows you to understand the MA crossover more easily. One MA line contacts the stock chart or another MA line. These interactions reveal bullish or bearish sentiment in the stock market and help identify short-term movements. Here are some ways to intersect:

The moving average is below the stock price, the stock price falls, the moving average rises, the two cross, continue to deviate, the moving average continues to rise, the stock price falls, as a bearish signal.

The moving average was initially located above the stock price, but the shares rose and exceeded the moving average. Traders interpreted a rise above the moving average as a bullish signal.

Two ways of using a moving average crossing in transactions

The mobile average cross combined with other technical indicators can help people trade stocks with more confidence. Traders can use multiple strategies in combination with the moving average cross, but if you use the moving average cross technique, you may need to be aware of both the gold cross and the death cross. Both indicators involve the short-term moving average and the long-term moving average. Common settings are graphs showing the 50-day and 200-day moving averages.

The cross between these two MAAs helps you predict the possible future direction of the stock price.

The golden cross

The gold cross is a bullish indicator when short-term moving averages exceed long-term moving averages. When the 50-day moving average is above the 200-day moving average, investors can see it as a bullish signal. The technical indicator suggests that short-term price movements are strengthening.

The cross of death

The death cross is a bearish indicator where the long-term moving average exceeds the short-term moving average. The long-term moving average can exceed the short-term moving average only when seller pressure accelerates. As more investors scramble to exit, the death cross could signal more pain ahead. If prices fall further, this indicator could give traders a chance to leave.

Let's look at the chart below in which the 20 day and 50 day moving ages are plotted

On the top left of the chart, 20, the daily moving average crosses down the 50-day moving average. This point represents a bearish trend. On the other hand, when the shorter time range moving average crosses the 50-day moving average, a gold cross appears on the right chart, indicating a bullish action.

Support and resistance

You can also use the moving average to detect potential dynamic support and resistance levels for asset prices by finding where the current price intersects or contacts with the moving average. When using the moving average to identify support and resistance levels, traders interpret the signal as follows:

• If prices intersect the moving average from above, the indicator signals potential support levels indicating that prices will rebound and move upward. Therefore, the bullish moving average serves as the support level.
• Resistance levels are set when prices hit the moving average from below, which means prices will move downward. Therefore, the bearish moving average acts as resistance

The chart below uses a moving average indicator to identify support and resistance levels.

It is clear that in an uptrend, the moving average acts as the price support level, indicating a price increase (the point indicated by the green arrow). On the right, resistance is determined using the moving average line (red arrow). When prices hit this line from below, it means a price drop.

This concludes the MA Usage Guide: Stock Selection Tutorial lesson. Please use the menu below to navigate to the lesson of your choice.