Trading with the 20, 50 & 200 Moving Averages
In order to be successful at trading we must learn to keep trading simple. One way of achieving this is by using one of the oldest and simplest trading tools…Moving Averages.
You can apply other techniques to help you buy the best stocks, CLICK HERE to learn more. This article will just be covering how to use moving averages.
I will demonstrate how easy it is to use moving averages to help you make money from trading, and also to help you understand when to stand aside and avoid losing money in the markets.
There are three important moving averages that can be applied to your charts that will help you trade better. They are the 20 moving average, the 50 moving average and the 200 moving average.
The 20 moving average (20MA) is the short-term outlook.
The 50 moving average (50MA) is the medium term outlook.
The 200 moving average (200MA) is the trend bias.
In a good uptrend we want to see price above the 20MA, the 20MA above the 50MA and the 50MA above the 200MA.
In a good downtrend we want to see price below the 20MA, the 20MA below the 50MA and the 50MA below the 200MA.
When the 20MA, 50MA & 200MA are not in alignment then it signifies that price is in consolidation or experiencing a pullback. During these times traders should stand aside and only trade when the moving averages are in alignment again.
In an uptrend or downtrend it is not uncommon for price to use the 20MA and 50MA as support/resistance before commencing the trend.
Trends don’t go on forever so expect a deep pullback or consolidation after good trends. Use the moving averages to identify trading opportunities and periods that you should stand aside.
If you are not using moving averages then it may be something you would want to consider adding to your trading strategy. Not only will it help you become more profitable but it will help your trading become effortless.
