Chris Rowe

Use Moving Averages to Keep Profits 'On the Move'

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Last week, we discussed the importance of understanding the market's trend, because the concept of trading with the trend is the main premise of technical analysis. Specifically, it's necessary when using a shorter-term trend to time your entry (or exit) points to determine the next longer trend.

For example, short-term dips should be used as entry points if the intermediate trend is up and, when the intermediate trend is down, short-term pops should be viewed as short-selling opportunities.

Once you get clear picture of whether a stock is trading in an uptrend or a downtrend, the next thing you want to look at are its moving averages.

Using Moving Averages

Moving averages are the lines on a chart that track the average price of a stock or index over a specific number of time periods (e.g., days, weeks, months, etc.) during a particular time frame. Remember, each bar in a chart represents a time period. In a daily chart, for example, each time period represents one day.