Moving averages are one of the simplest but most powerful indicators. Moving averages help to smooth out price data and identify trends over a period of time.
Types of Moving Averages
Simple Moving Average (SMA): the average price over a period of time. For example, a 50-day SMA calculates the average of the closing prices over the last 50 days.
Exponential Moving Average (EMA): gives more weight to the most recent price and is more sensitive to price fluctuations.
How to use moving averages.
If the price is above the moving average, it is a buying opportunity. Conversely, if the price falls below the moving average, it is a sell signal. A "Golden Cross" occurs when the short-term MA (e. g. 50-day MA) exceeds the long-term MA (e. g. 200-day MA), indicating a bullish trend. A "death cross" occurs when the short-term MA falls below the long-term MA, indicating a bearish trend.
RSI measures the speed and changes in price movement; RSI ranges from 0 to 100 and is mainly used to identify overbought and oversold conditions.
How to use RSI
the RSI index above 70 indicates an overbought condition. In this case, the stock may be bought.
An RSI below 30 indicates an oversold condition. The stock may be undervalued, indicating a buying opportunity.
MACD is a momentum indicator that follows a trend. It shows the relationship between two moving averages of a stock's price.
MACD Components: MACD line: the difference between the 12-day EMA and the 26-day EMA.
Signal line: the 9-day EMA of the MACD line.
Histogram: the difference between the MACD line and the signal line.
Usage of
MACD line above the signal line is a buy signal; the MACD line below the signal line is a sell signal. A gap between the lines indicates the strength of the impulse; a larger gap indicates a stronger impulse.
Bollinger Bands consist of three lines: the middle #band (SMA), the upper band and the lower band. The bands widen and narrow depending on market volatility.
How to use Bollinger Bands
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