10 Things Traders Need to Know about Moving Averages.

By New Trader
12th Jan 2013

Do you use moving averages in your trading? If not you are missing out on a very simple tool for finding support and resistance levels along with possible trend identification. It is very interesting to lay a 50 day and 200 day simple moving averages on to a chart for the past year. You will begin to see patterns develop. Bounce off the 50 day, a last chance for support at the 200 day etc. Each stock and ETF has different key moving averages and different reactions to them on the chart. It can really help your trading to know the key moving averages for what you are trading and clues to support and resistance, they give clues as to where the buyers and sellers are waiting.

Ten things traders need to know about moving averages.

Technical Analysis - Moving Averages - Simple (SMA) and Exponential (EMA)

By StockCharts.com


Introduction

Moving averages smooth the price data to form a trend following indicator. They do not predict price direction, but rather define the current direction with a lag. Moving averages lag because they are based on past prices. Despite this lag, moving averages help smooth price action and filter out the noise. They also form the building blocks for many other technical indicators and overlays, such as Bollinger Bands, MACD and the McClellan Oscillator. The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). These moving averages can be used to identify the direction of the trend or define potential support and resistance levels.

Here's a chart with both an SMA and an EMA on it: