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Figure 12.20
20-Day Moving Average Chart
Copyright 2000, TradeCast® Ltd. |
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includes an automatic tool to draw moving averages. A 20-day moving average, as shown in Figure 12.20, is a series of datapoints calculated to be the average of the closing prices for each of the past 20 days. |
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In Figure 12.20, see how the 20-day moving average is superimposed over the Japanese candlestick chart. The moving average clearly reflects the trend while smoothing out the fluctuations in the data. The longer the period, the more the data will be "smoothed." |
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Use moving averages as you would support and resistance: |
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If the current price is above the moving average, that is a bullish signal. In effect, buyers are driving the current price well above the trend. |
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Conversely, if the current price is below the moving average, that is a bearish signal. Sellers are driving the current price well below the trend. |
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We also can use two or more moving averages on the same chart to look at the trend from two different time perspectives, say, 20 day and 40 day: |
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