Trader Q&A: Evaluate stocks with moving averages


[John] Okay, great. So our next question comes
from [Ted] in Illinois. “How do I use moving averages?” Okay.
[Kevin] Well, Ted, honestly, you know, moving averages can tell you a lot about what you’re
up to with an individual stock. But I want to caution you because, as with indicator,
any oscillator you might consider using in a technical approach to the charts or to the
market, nothing is ideal for every stock you look at. So you know, some securities really
work with within moving averages, 20-day, 50-day, or 200-day moving averages. But, you
know, the first thing I would say is to evaluate that on a stock-to-stock basis. I think you
can take a snapshot in time, maybe a one or two-year period, looking at some standard
moving average levels and see if the stock actually reflects that it relies on those.
You know, if you find that it retreats to it’s 50-day consistently, sits on it for a
day to a couple of weeks, and then moves off of it, well, then you’re finding something
out about that stock. You’ve done a little bit of homework. You’ve learned something.
But when you take that same thought process to the next security, if you’re not seeing
it, don’t be married to the concept or to the idea. So what I would say is, Ted, give
us a call. Let’s have a chat about what you want to use the moving averages for. You can
use them for buy signals. You can use them for sell signals. They are there. But I just
caution against using them as a blanket approach because each stock seems to work differently
with many different indicators. [John] Yeah, what I would add to that, Kevin,
is what we teach you in our technical analysis for traders class is exactly that, how to
use your moving averages, how they’re constructed. For a simple moving average, just to give
you a little snippet, let’s say it’s a 20-day simple moving average, it is just simply taking
the average of the closing prices of the last 20 days. So for those that use moving averages
for signals for buying or selling, if current price is above the average price of the last
20 days or the 20 day moving average, then they consider that a bullish signal. And vice
versa if it’s below, it’s considered a bearish signal. You can also use those as support.
And Kevin mentioned three of the most popular moving averages, the 20-day, the 50-day, and
the 200-day. So those are widely followed. You know, if you watch CNBC, you’ll hear them
mentioned also on CNBC. But to learn more, sign up for one of our seminars, search for
one in your local area, or take our live online seminar, technical analysis for traders.

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