Many investors appear to have been hurt by the moving average stress syndrome, called MASS (Moving average stress syndrome), claiming that it would be better to use the upper moving average. graph, or assume that there will be certain moving averages that perform better. During our practice, we have found that the MA10-day, MA50-day, and MA200-day are quite effective at confirming and handling leading stocks as they initiate or resume medium-term uptrends. and short term. Again, let's go back to the simple test of whether adding an extra piece of information on the chart will help you get better information, on time, and act decisively to build position when the resistance line. The weakest resistance is broken, and then continuously pyramid-based position replenishment at low-risk buying points during the bull run.

In Figure 4.8, we take the bar graph example of Lululemon Athletica, Inc. (LULU) and drop it into no less than 7 moving averages. These include the lotus pink-day SMA10, the dark turquoise 20-day SMA, the bright turquoise 20-day EMA, the 50-day SMA in blue, the 65-day EMA in black, the 150-day SMA in the pink, and the 200-day SMA in red. Immediately, besides the fact that they confuse the chart and it seems that stock prices automatically find support and resistance points at any of the moving averages in them, what's worth noting right away?

What we notice is that when the stock is trending strongly in the short term, the 10-day, 20-day, and 22-day moving averages tend to form a support for stocks in the uptrend. price. When the stock is building a tectonic base, which is essentially either sideways or slightly shallow, the 50-day and 65-day moving averages will squeeze together to act as support. Finally, when the stock begins to correct in its background and falls out of a consolidation zone or breaks the trend line, it will find support at the MA150 and the 200 day MA. So what do all the moving averages say? It basically shows that moving averages will follow price, not vice versa, since moving averages are inherently computed from price action, rather than acting independently of price.

So if the moving average is calculated from the price, and there's no magic here, what is the logic behind the moving average? There is no doubt that the moving averages will act as the stock's support zone as it corrects as the crowd of traders and investors will jump in and buy at these points simply because of it. was taught in Technical Analysis program 101 (ND: is the basic program). In other words, since so many people believe in the concept of support at a popular moving average that it is common sense, it becomes a self-fulfilling predictive phenomenon.

Once, someone anywhere noticed key moving averages like the daily MA50 or the 200 day MA acting as support points in many cases based on a statistically significant number of samples. Therefore, there is an acknowledgment to the moving averages on the basis that they represent a certain average price at which investors (eg over the past 50 days) have bought stock. Therefore, if this is true, there is an effect on the investor who has bought the stock at or near this average price, so when the stock falls to the MA50 of the day, they tend to support it for stocks where they were originally purchased.

We see the 10-day SMA, the 50-day SMA and the 200-day SMA on the daily chart, in general, all that is needed to properly process a stock, i.e., correctly identify the buy and sell points. On the weekly chart, the MA10 is too short, but the MA50 and the 40 day MA are equal to the weekly MA10 and the 40 weeks MA. There are a few exceptions, and we will take the example later, but for now try to understand the graph of the date of Apple, Inc. (AAPL) from the end of 2011 to the first quarter of 2012 when it started to accelerate (Figure 4.9).
In this case, we see the stock starting to break out and accelerate from the major consolidation zone near the end of December 2011, from which it started to follow the MA10. Even a small correction below the MA10-day in early March 2012 did not hurt the stock as it did not actually violate the MA10. Recall that if a stock closes below the daily MA10, watch for the next day's price movement if it falls to the low of the first day of closing below the MA10 so that it really looks like a bias. It is technical or not. Hence, a bit of noise in the MA10-day duties is still acceptable, and we can see that from the chart of the AAPL as it slips below the daily MA10 but is not making a technical breach. . During the bull run, those who rely on technical signals can find a climax in the AAPL's parabolic price movement, but simply that the 10-day MA offers a simple and easy-to-use sell guide. without worrying about whether price action/volume action is "high" or "parabolic movement", which can cause you to sell stocks early.

Now step back a little bit and look at Apple, Inc. (AAPL) from 2009 to 2012 is based on two different weekly charts (Figure 4.10 and Figure 4.11), where have separated the weekly MA10 and MA40 week for each chart. Note that the weekly MA10 on the weekly chart is roughly equivalent to the MA50 on the daily chart, while the MA40 on the weekly chart is roughly equivalent to the MA200 on the daily chart.
Figure 4.10 shows the MA10 week, and we can see the full period after the March 2009 bottom, the AAPL moved around the MA10 week during the bull run. In general, when it breaks through the weekly MA10 breakout it is a signal that this stock might move into consolidation over a period of weeks or months. Therefore, on the weekly time frame, we can see that there were times when the price went down slightly below the MA10 of the week (ND: but did not violate). Although the weekly MA10 is not an impervious support barrier for this stock whenever it corrects during its 2009-2012 bull run, it has performed well with its full-time MA50. this increase.

In Figure 4.11, we show AAPL separately on a weekly chart with MA40 week, equivalent to MA200 on the daily chart. The MA200-day is seen as a long-term moving average and is therefore useful when evaluating the long-term trend of stocks. Is this because it is a self-fulfilling prediction or because institutional investors see this as the "last bear point or uncle" at the 20-day MA (or 40-week MA), where they should jump in to support large holding investments like AAPL. We all observe how the AAPL reacts around the 40-week MA to understand how they behave for a particular stock. This is how we work with the moving average, which is how the stock's characteristics react to a particular moving average. In this case, the characteristic of AAPL around the weekly MA10 (or immediate MA50) is moving around this line, but most of the time when it is active in trend it remains above the weekly MA10. Once it falls down the weekly MA10 duties can expect the price to move into a consolidation zone for some time. However, it adhered so closely to the 40-week MA (equivalent to the MA200) throughout the bull run as shown in Figure 4.11, so that each time it pulled back to the 40-week MA, it found support there. An investor looking to accumulate AAPL stock at each hcinrh session can jump in every time it drops to the MA40 week during the period from March 2009 to early 2012. Therefore, we have It can be said that the price movement of the AAPL versus the weekly MA40 (or MA200-day) is a reliable guide to determining the lower bound for an uptrend, and is, therefore, a plausible point for class traders. Value can jump in and accumulate stocks.

Observing and studying carefully whether the moving average of stock can hold or not is entirely based on specific characteristics of that stock. In our study, we find that the short-term trend of the strong lead stocks usually holds the MA10-day, while the medium-term trend is held by the MA50-day and the long-term trend is held by the MA200-day. As we wrote at the beginning, there are some exceptions, and understanding them is an important part of observing and studying a security's price/volume action in order to determine the moving average. is reasonable to use.

From late 2010 to the first half of 2011, we captured a large bullish trend in silver, as shown on the daily chart of the iShares Silver Trust ETF (SLV) in Figure 4.12. Notice the SLV has a breakout point and breaks out of the background from $ 20 and begins to hold the MA20 on. This was determined by us from the start of the trend and corrected at the end of October 2010. At this point, the SLV corrects and finds support at the MA20 on several occasions while it rises in price to the levels. higher, eventually reaching the price of $ 30. Once the SLV breaches the-day MA20, the first bullish wave is over, and the stock will experience several weeks of consolidation around the-day MA50.
Once the SLV can form a breakout above the MA20, it will initiate a new steeper uptrend and once again hold the MA20 on each correction. This uptrend plays out in a Parabolic pattern until it peaks at $ 50 / ounce.

Hopefully, readers are starting to understand our discussion here is that there is no magic moving average. Different stocks will adhere to different moving averages, and in our practice, the MA10-day and MA50-day are just two general guidelines. In separate cases, such as the SLV, stocks may find support at the 20-day SMA and the 65-day EMA, but this is the exception rather than rule them. However, through careful observation, you can determine which moving average is appropriate for each stock. In our study, the 10-day MA and the 50-day MA appear to be commonly used by most stocks (this is statistically based). This explains why we use these two lines quite thoroughly, although in exceptional cases where we perceive individual characteristics (eg SLV) it tends to hold the MA20 days from year-end. 2010 to mid-2011, then we will use MA20 days.

One of the main problems with the moving average is that it is in widespread use, so there is a crowd response to moving average prices whenever the stock hits. it. So, for example, the concept of support at the MA50 day is so deeply embedded in the brains and methods of most traders that the market mogul turns the crowd into idiots by penetrating this moving average. This is the main reason why we use the moving averages, and why we don't see the first time the moving average breach as a technical violation. At first, we consider closing below the moving averages suspicious, and the days after that the stock must move below the bottom of the first day to close below the moving averages. true offense.