How to Use Moving Averages to Identify Trends in the Stock Market
Many people talk about whether the stock market is in a bear market or a bull market. But what is an effective way to identify the trend? In this article we discuss moving averages as an effective means to identify trends in the stock market.
Many people talk about whether the stock market is in a bear market or a bull market. But what is an effective way to identify the trend? In this article we discuss moving averages as an effective means to identify trends in the stock market.
Moving Averages
A moving average is simply the sum of a stock or stock market indexs price for a given number of days divided by the number of days in the moving average. For example, a 20 day moving average is the sum of a stock or stock market indexs price for the past 20 trading sessions divided by 20. To update the moving average, you would add in the current trading days closing price and remove the oldest trading days value from the calculation.
The Short-term Trend
To identify the short-term trend, calculate a 20-day moving average and then determine if todays price is above or below this moving average. If the answer is above, you are in a short-term bull market. If the answer is below, you are in a short-term bear market.
The Intermediate-term Trend
To identify the intermediate-term trend, calculate a 50-day moving average and then determine if todays price is above or below this moving average. If the answer is above, you are in a short-term bull market. If the answer is below, you are in a short-term bear market.
The Long-term Trend
To identify the long-term trend, calculate a 200-day moving average and then determine if todays price is above or below this moving average. If the answer is above, you are in a short-term bull market. If the answer is below, you are in a short-term bear market.
