Thursday, 27 November 2014

A closer look at moving averges.

I like to use moving averages as a 'line in the sand' indicator of recent price behaviour.

It is also well known that large institutions pay attention to the 50 and 200 period moving averages; in particular a crossover of these to highlight trading opportunities.

The charts below will show a few examples on different timeframes and securities to highlight that price action can be used across different investment products and duration.

The EUR/USD chart above displays some action on the weekly chart around the 200ma, with the follow through that can occur. The rectangle areas show small risk opportunities with large potential reward.

The monthly chart of Gilead Sciences is a great example of the 200 period moving average. Once price crossed through, it never looked back and was up +300%. I used the monthly chart to highlight how damaging over-trading can be.

The chart of Century Aluminum crossed the 200ma in January of this year and returned 100% on your investment. In the example of CENX you would be buying the ma cross at 11.50 approx and the potential to cut the investment if it fell under the ma.

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