As promised, I have returned with more learning tools for technical analysis.
In the last post we covered, very quickly, some of the basics of technical analysis. I hope that you have been able to further research some of the investment philosophies and chart patterns that we talked about last time.
Today I want to show you one of the simplest technical analysis tools in action.
Moving averages play a role in technical analysis that is akin to watching the
headlines of the newspaper. It tells the investor what the market has been for a stock over a certain period of time. Moving averages are also used to smooth out price fluctuations, determine trends, and define support and resistance levels.
The most common moving average periods are 200 days and 50 days. As traders reduce their time span for trading a stock, they will look at shorter moving averages such as the 10 day or 5 day moving average to determine the most current momentum trend.
One of the most basic strategies for timing the market, or using technical analysis for trading stocks, is to watch for crossovers in the different moving averages. For instance, when a shorter moving average crosses a longer moving average, this is seen as a buy signal. The same holds true for the reverse situation if the longer moving average crosses the shorter moving average, we have a sell signal.
There are many more complicated technical analysis strategies and techniques, but several more complex techniques are formed from basic tenets of technical analysis such as moving averages.
Stay tuned for more on technical analysis and how it can help you make money with dividend stocks.