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Moving Averages

A moving average is the average price of a future/commodity over the previous period closes.

Moving Average Price Signals

A. When price rises above the moving average , this is a bullish indication. When the price falls below, this is a bearish indication.

B. When a short term moving average crosses above a longer term moving average , this indicates an  upswing in the market.

C. When a moving average crosses below a longer term moving average this indicates a down turn in the market.

Trading Signals

- Signals are generated when price crosses the moving average.

- Long signals are generated when price crosses above the moving average from below.

- Short signals are generated when price crosses below the moving average from above.

The most popular method of interpreting a moving average is to compare the relationship between a moving average of the security's closing price and the security's closing price itself.  A sell signal is generated when the security's price falls below its moving average and a buy signal is generated when the security's price rises above its moving average. This type of moving average trading system is not intended to get you in at the exact bottom and out at the exact top.  Rather, it is designed to keep you in line with the security's price trend by buying shortly after the security's price bottoms and selling shortly after it tops.

The critical element in a moving average is the number of time periods used in calculating the average.  When using hindsight, you can always find a moving average that would have been profitable.  The key is to find a moving average that will be consistently profitable.  The most popular moving average is the 39-week (or 200-day) moving average.  This moving average has a good track record in timing the major (long- term) market cycles. The length of a moving average should fit the market cycle you wish to follow:


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