Using Technical Analysis for Immediate Profits

Contrary to popular belief, technical indicators make trading easier, not more difficult.  While new traders may see jagged lines and multi-colored trends, picking up a technical indicator and using it to trade is easier than it looks.

Moving Averages

The most simple of all the technical indicators, moving averages are used by a wide variety of traders and investors to help forecast the future direction of the markets.  Some common moving averages are the 20, 50, 100, and 200 day moving average settings.

There are two very common ways to use moving averages as technical indicators.  The first method is to use a single, 200 day moving average as a buy and sell cross with the price.  When the price is above the 200 day moving average, the market is bullish.  When the price is below the 200 day average, the market is bearish.

The next strategy is an alternative version of the first.  Using a 50 day moving average and a 200 day moving average, traders have a very powerful technical indicator at their disposal.  When the 50 day moving average crosses above the 200 day, the market is bullish.  Likewise, when the 50 day moving average crosses below the 200 day moving average, the market is bearish. 

This very simple indicator is known and used by traders around the world.  In fact, one of the most important market phenomena, the death cross, is a product of the 50 and 200 period moving average cross.

Using Moving Averages as Support and Resistance

Hand drawn support and resistance lines are technical indicators, but the moving average can be used as support and resistance as well. 

The 10 week moving average works excellently to provide support when the price is higher than the current moving average.  Alternatively, it acts as resistance when the price is below the current moving average reading.  A break below or above the 10 week moving average should be treated like any other technical indicator breakout.

Whereas the longer term (100 and 200 day) moving averages tend to provide a long term bull/bear view, the shorter term averages often provide the most support.  The most popular short term support and resistance averages are the 20 and 50 day averages, as well as the 10 and 26 week averages. 

You'll notice that the 26 week moving average is one of the few that does not rest on an even 5 or 10 week period, but that's because its meant to track a half year, rather than a certain number of weeks or months.

An Average for Every Security

Each security will have a moving average that works best as a technical indicator.  For instance, bonds, which are typically slow moving and have little intra-day price action, are usually monitored with longer term averages.  Stocks, on the other hand, are often observed with shorter averages.

There is perhaps no other more useful, but basic, technical indicator than that of the moving average.  Moving averages allow investors to see the current market price compared with the average price trailing a determined amount of periods.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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