When you’re new to trading, the sheer number of indicators, charts, and analyses can feel overwhelming. But there’s one technical tool that stands the test of time for its simplicity and effectiveness: the humble moving average. Let’s break down this powerful indicator into bite-sized, actionable knowledge.
What Is a Moving Average?
A moving average is exactly what it sounds like — an average of prices that “moves” over time. It calculates the average price of a stock over a specific period, creating a smooth line that filters out short-term price fluctuations and noise.
Think of it as taking the temperature of the market rather than reacting to every minor fever or chill.
Types of Moving Averages You Should Know
Simple Moving Average (SMA) gives equal weight to all prices in the calculation period. If you’re looking at a 20-day SMA, each day contributes exactly 5% to the average.
Exponential Moving Average (EMA) places more emphasis on recent prices. This makes it more responsive to new information and price changes, which many traders prefer for faster-moving markets.
Predictive Moving Average (PMA) is VantagePoint’s main forecasting weapon which gives you 1 – 3 days predictive data.
How Traders Use Moving Averages
1. Identifying Trends
When prices consistently stay above a moving average, it often indicates an uptrend. Conversely, prices consistently below suggest a downtrend. This simple observation helps traders understand the bigger picture.
2. Support and Resistance
Moving averages often act as dynamic support (in uptrends) or resistance (in downtrends). Many stocks bounce off these levels, creating potential entry points for trades.
3. The Golden Cross and Death Cross
When a shorter-term moving average crosses above a longer-term moving average (like the 50-day crossing above the 200-day), it’s called a “Golden Cross” — a bullish signal. The opposite, a “Death Cross,” often signals bearish momentum.
Beyond Basic Moving Averages
While mastering the basics of moving averages will significantly improve your stock selection process, today’s most successful traders combine technical analysis with cutting-edge technology.
Join our Free Live Training to discover VantagePoint’s patented Predictive Moving Average (PMA) and how our advanced A.I. forecasting tools can help you identify high-probability trades using moving averages and other powerful indicators.
Ready to take your trading to the next level? Register here for our upcoming session and learn how to spot winning stocks before they make their biggest moves.
