How to Use Basic Moving Averages

 For any new trader or infact pro ones too, Moving Averages can be a great indicator. It acts as a dynamic support and resistance tool and we can easily follow them to keep holding our positions by following the trend or even enter or exit current positions.

What's best about moving averages is that they are not subjective like the trendlines. In trendlines, i have seen people plotting it the wrong way and trying to forcefully make a trendline even if there shouldn't be one.

In the case of moving averages, we won't face this problem as it is the same for everyone. We can't put our personal bias into them and they are a calculation of the average of the prices. 

Moving averages has been used by many pro traders from a long time and it is still a great tool to analyse are trades. We can combine it with basic price action to add icing on the cake or even use them as a stand alone too. 

They are basically a complete tool in themselves. It makes trading and investing very easy. Even for long term investing, we can use these moving averages in higher time frames to see if the trend is intact or not and decide accordingly if we want to keep holding our positions or not.

There are basically many moving averages and people have their own favourite ones which they use accordingly. I have been using 200,50 and 20 Exponential Moving Average ( Ema ) for sometime now. 

The 200  moving average is used to see if the long term trend is intact or not and 50 is for medium term and 20 for short term. The trend of the stock depends upon which moving average it is generally bouncing back from. Many of the strong stocks will always bounce back after touching the 20 ema itself , some come and take support near the 50 ema and on some rare occasions like in the time of Covid - 19, almost most of the stocks came to take support at their 200 ema. 

In the following chart of Visa Inc, Weekly Chart, we can notice the same thing as i have marked. 

It generally took support at 20 ema, sometimes it came to touch 50 ema and recently it touched 200 ema and bounced from there. Whenever price comes near these supports and shows a bullish sign, we can take a nice low risk entry and keep riding till it is above the same.

So as we can see, just by following the basic moving averages, we can keep riding our long term holdings and even add them at great prices, when they are near support. 

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Similarly, we can also take entry and exits for short term using the crossovers of various moving averages. 

I will try to explain one of the basic methods which we can use to trade swing easily using a crossover of two of the moving averages. These are 20 and 50. 

So, we will take entry whenever 20 ema crosses 50 ema from below and we will keep riding till it again crosses it from above. We can always re enter when the 20 ema again crosses and goes above the 50 ema as highlighted in the chart. 

The following can be seen in the chart as highlighted :- 

The black one is 20 ema and blue one is 50 ema.