Moving Average

Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels. Moving averages can be used to quickly identify whether a security is moving in an uptrend or a downtrend depending on the direction of the moving average. When a moving average is heading upward and the price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend. Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The signal of a trend reversal is when one moving average crosses through another. For example, as you can see in following figure, if the 10 day moving average crosses bellow the 25-day moving average, it is a negative sign that the price will start to decrease. If the periods used in the calculation are relatively short, for example 10 and 25, this could signal