How you can make moving averages more powerful
Moving averages are an extremely helpful and potentially profitable indicator
to trade in conjunction with TradingMarkets’
PowerRatings.
Technically speaking, a moving average is
the un-weighted mean (average) of a stock’s closing price over the last n
days. So if we are looking at a stock’s 20-day moving average, we are
looking at an average of the past 20-day’s prices, and so on.
Moving averages are great points for levels of
support and resistance. For example, if a stock price is above its 20-day
moving average, then the stock’s 20-day moving average will become a strong
level of support which would require a powerful push to break. Conversely,
a stock below its 20-day moving average will have a hard time breaking through
that price range to move up. Because the moving average has such an impact
on stock price, oftentimes a stock will test its moving average before making a
serious move.
Traders can use
PowerRatings
hand in hand with moving averages to predict
major price moves. A recent example of a powerful convergence between
these two indicators occurred in Brightpoint
(
CELL |
Quote |
Chart |
News |
PowerRating) when it pulled back to its 20-day moving average
On 2/03 CELL had a
PowerRating
of 7 as it approached its’ 20-day MA. This should have
highlighted it as a potential buy with the 20-day MA as a support level. Two
days later when CELL tested its’ 20-day MA it had a
PowerRating
of 8, increasing the odds of a bounce. Sure enough over the 5-days since the
PowerRating
of 7 CELL gained over 15% (and even more since the
PowerRating
of 8).
So here we have an example of a stock with a high
PowerRating
that coincides with the price hitting a moving average. Over and over at TradingMarkets we follow stocks that
have high
PowerRatings,
and we consistently see stocks rated 7 and higher outperform the market over the
next five days. Try to use
PowerRatings
with some of your other favorite indicators,
and we are confident that you will find
PowerRatings
to be a useful and easy-to-use tool. Good luck and have fun trading
with
PowerRatings.
Click here
to take a free trial of
PowerRatings.
You can also
attend a free
class on how to use
PowerRatings
presented by Steve Primo, our Director of Education.
New!
Click here to learn how to trade
PowerRatings
in a simple, systematic way.
Ashton Dorkins
Editor-in-Chief