Moving Averages (MA)
Moving averages can be used to identify the trend directions or determine potential support and resistance levels. The moving average is a trend following (lagging) indicator based on past prices. The Simple Moving Average (SMA) represents a true average of prices for the entire time period. As such, it is better at identifying support or resistance levels. The SMA is known simply as just MA.
Price Crossovers
MAs can also be used to generate signals with single price crossovers. A bullish signal is generated when prices move above the MA. A bearish signal is generated when prices move below the MA. The longer MA sets the tone for bigger trend and the shorter MA is used to generate the signals.
MAs can also be used to generate signals with single price crossovers. A bullish signal is generated when prices move above the MA. A bearish signal is generated when prices move below the MA. The longer MA sets the tone for bigger trend and the shorter MA is used to generate the signals.
MA Crossovers
A bullish crossover (golden cross) occurs when the shorter MA crosses over the longer MA. A bearish crossover (death or dead cross) occurs when the shorter MA crosses below the longer MA. MA crossovers produce relatively late signals. So they work well when there's a strong trend.
A bullish crossover (golden cross) occurs when the shorter MA crosses over the longer MA. A bearish crossover (death or dead cross) occurs when the shorter MA crosses below the longer MA. MA crossovers produce relatively late signals. So they work well when there's a strong trend.
Ok. We got the definitions out of the way. Since there is a lack of examples in the local context, I will illustrate the usage of MAs using SGX stocks.
From $Rex Intl (5WH.SG)$'s chart above, you can see that it was bullish in Oct 2021 as the prices were above the 5-day MA. It was in a short term uptrend. Since Jul 2021, it has briefly dipped below the 100-day MA and then rebounded. This serves as support. This shows that it is medium term bullish. Short-term bearishness (downtrends) were just pull-backs with the medium term outlook intact. The 5-day MA crossed over the 20-day MA generated a buy signal for the swing trader. While the 5-day MA crossed below the 20-day generated a sell signal.
Let's look at $Riverstone (AP4.SG)$'s chart above. In Aug 2021, when the price approached the 200-day MA it fell. This acted as a resistance and showed long-term bearishness, and generated a sell signal. However in Mar 2022, the price broke above the 200-day MA and also the 5-day MA crossed above the 200-day MA. This changed the long-term outlook to bullish and generated a buy signal. The 200-day MA now acts as a support.
In conclusion, MAs can be used to identify the direction of the trend or determine resistance and support levels. However, since they are lagging indicators, they should be used with other indicators to give more accurate resistance and support levels.
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Always Hungryy : thanks for the article. I am new to this. the moving average gives an explanation for the past but not the future... or am I wrong?
bullrider_21 OP Always Hungryy : np. so long as there's no change in trend, you can still use them. They are lagging, so you should use them with other indicators to get more accurate resistance and support levels.
Meta Moo : good analysis![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
bullrider_21 OP Meta Moo : thx Meta Moo
NANA123 : follow you to learn everyday![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
bullrider_21 OP NANA123 : thx NaNa. I just had 2 good examples.
NANA123 bullrider_21 OP : enough for me to study![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
JM investor : Thank you so much for the analysis! Glad to know that MA200 is also useful for Singapore stocks :)
bullrider_21 OP : Thx for your kind comments. MA200 can be used for anything - stocks, commodities, cryptocurrencies, forex, etc.