preview

Using Moving Averages in Stock Trading

Decent Essays

A way to use moving averages is to use them as dynamic support and resistanceWe like to call it dynamic because it's not like your traditional horizontal suppo resistance lines. They are constantly changing depending on recent price action.There are many traders out there who look at these moving averages as key sup resistance. These traders will buy when price dips and tests the moving averagif price rises and touches the moving average. Watch the blue line as support.
It looks like it held really well! Every time price approached 20 EMA and tested it, it acted as resistance and price bounced back down. Amazing, huh?
One thing you should keep in mind is that these are just like your normal support and resistance lines. This means that price won't always bounce perfectly from the moving average. Sometimes it will go past it a little bit before heading back in the direction of the trend.
There are also times when price will blast past it altogether. What some traders do is that they pop on two moving averages, and only buy or sell once price is in the middle of the space between the two moving averages. You could call this area "the zone".(figure 11) In an uptrend, as with an uptrend-line, the moving average line shows more instances where the average coincided with or acted as, support and in a downtrend, similar to what happens using a down trend-line, there are many instances where the moving average coincided with resistance.
There are some traders who use intraday

Get Access