One of the most widespread used technical tools is that of the moving average.
The moving average is nothing more than taking the closing prices of a stock or index over a certain time period and certain time frame daily, weekly etc.
This helps to filter out much of the noise that is caused by either upside or downside volatility.
This cleaning up of the noise helps us to get a cleaner visual of the price action.
One of the difficulties with moving averages is what to set the time period at, in other words how many days, weeks or months do you want in the moving average.
First you have to determine what trend you want to look at, short, intermediate or long term.
Below you will see the different time frames along with what I use and what I have found work the best for daily charts. Once again, this does not mean they are either right or wrong, I have just found through extensive research that these work best for me.
**** Short Term - 6 and 11 day simple moving average
**** Intermediate Term - 39 day simple moving average
**** Intermediate/Long Term - 70 and 90 day simple moving average
**** Long Term - 125 and 180 simple moving average
I have attached charts showing all of these moving averages on stocks that I randomly picked from my archives. This way I was not mining stocks that worked best with certain moving averages. The charts are above for your inspection.
This completes the first module on daily simple moving averages.
I will be covering Weekly and Monthly time frames in the next module.
If you have any questions please feel free to drop me a line.
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