Popular Moving Averages

Most of you probably are already aware of the commonly used indicators called moving averages. They are simply average price movements calculated differently (exponential, simple, weighted, etc) drawn on the chart.

I’ve come across so many people swearing to their mother their variations are the best ones to use. So I’ve summarized some of the most popular ones I’ve seen:

200 Day Moving Average (Simple): Long-Term

I don’t think anyone can argue against the use of this one as a long-term trend indicator. You see it everywhere, you read it everywhere, you use it yourself. 200 days “simple” (straight 200 day average) seem to be the “standard” long-term average traders to make trading decisions. If you plan on holding the stock for a while, try to buy when the stock is above this line to ensure you’re on the “right” side.

50 Day Moving Average (Simple): Mid-Term

I also don’t see many variations of this used for the mid-term trend analysis. If 200 days MA is the bread and butter for long-term, 50 days is the “standard” for mid-term. Many look for a crossover of 50 days MA and 200 days MA as an indicator that the trend is reversing.

10-14 Day Moving Average (Simple or Exponential): Short-Term

If you want a snapshot of a short-term trend and understand the short-term price action, use 10-14 days moving averages. Exponential averages will react to the trend change faster than simple moving averages. See below for the difference between 14 days simple and exponential. 10 days or 14 days won’t make too much of a difference.

5 Day Moving Average (Simple): Short-Term & Day Trading

I’ve seen day traders use moving averages that are less than 10 days old. If you are into very short-term trading, you need to be keen on understanding short-term trending to get an edge. Typically you want to try and buy when the stock is trading above the 5 day moving average while sell when trading below the 5 day moving average. That way you are following the short-term trend and your odds may be with you.

Tim Sykes Challenge DAY9 – RHIE

Tim quoted:

Shorted 3000 RHIE at $2.88…this was one of my many potential shorts today…i’m shorting this from denver airport terminal…..missed perfect plays ZLC and DNDN due to my flying back to NYC…this one has the perfect first day down pattern, support is at $2.60ish but if that gets taken out, ideally in a morning panic tomorrow, this could go to the low $2s, great risk/reward, cut losses if it starts spiking as its already down 10%ish on the day today

Damn it. I can’t short anything under $5 because Scottrade doesn’t allow it. That’s some BS. Given most of the trades/suggestions made by Tim are under $5. I’m kindda outta luck unless he has buy suggestions. I’m still patiently waiting.

RHIE short looking good though..wish I can short.