The Power of Simple Moving Averages

One of the most sometimes overlooked tools we have as traders / investors in Simple Moving Averages. Or SMA’s. They are easy to use, free, heck you can go on Yahoo Finance and create your own charts with them right there if you do not have a trading platform. That’s how I learned. Along with a lot of studying and a non stop barrage of hard knocks.

SMA’s are exactly what they sound like. Lets say that you are using a 50 SMA. The average is calculated by using the closing prices of the last 50 trading days then dividing that by 50,  easy enough!

Traders often complicate things by adding tons of lines and other stuff that run over everything in their charts. I try to do that as little as possible. One way is to use Moving Averages. The purpose of using multiple moving averages say like the 20 and the 50 can be two fold. 1st if the lower moving average ( in this case the 20 ) crosses down below the higher m.a’s. ( in this case the 50 ) then that is considered bearish. On the other hand when the lower m.a. crosses up above the higher m.a.then that is considered bullish.

A bullish crossover is called a Golden Cross while a bearish crossover is called The Death Cross.

The 2nd purpose for using Moving Averages is they can often be used as a Support area.A stock may follow 20  while others may follow the 50 or another average… It is often pretty easy to adjust and find out which moving average the stock is bouncing off of and or hovering around before it possibly breaks out again with volume.

Lets take a look at 3 different charts and examine their moving  averages and how the stocks did while following them. Also all 3 of these stocks have Volume well over 1 million. I am not a fan of thinly traded stocks. Rarely do they hold up well after a advance. Plus volume shows strong Institutional support. .

Lets start with a stock I had strong success with in 2014 and 2015 both $EA  Notice how Electronic Arts continued to rise every time it bounced off of the 50 SMA

Next up is $JNJ Johnson and Jonson showed steady strength throughout the year even when other leaders were falling left and right. It continues it’s steady ascent North overtime it bounces off of the 20

Lastly we have $TASR. TASR is showing signs of advancement since it broke out in Mid-May. It continues to use the 20 sma

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Trade smart, live charitably and be well…… Bill Mc

DISCLAIMER: All content provided and shown in this newsletter, chart and or video is for Educational and Entertainment purposes only. Nothing included or mentioned is meant to be construed or used as trading / investment / financial advice. Trading / investing carries risk of loss, losses can and do occur. Know your risk and risk of loss before taking on any financial endeavors. Past performance is NOT a guarantee of future success.