A lot of traders don’t know how to use moving averages properly. I’m just gonna tell you what I’ve learned from other traders, mainly the guys at Pristine.com. Basically, there’s no single moving average that works for across all stocks. The idea is this, you have to look to the price actionon the left of the chart and then find the moving average that fits the chart accordingly. Here’s an example:
You can’t just use the common 200 day and50 day moving averages as support and resistance, because these MA’s don’t fit with the chart. However, look at the yellow line, which is the 20 day MA. On this latest run higher over the past three months, notice how the price action on the left fits perfectly with the 20 day MAas a support level. A break of this moving average means there’s a change in trend.
Now, let’s take a look at the chart of SNDK:
Look at how the 20 day MA is pretty much uselss in this chart. However, once you put the 8 day EMA on the chart, every support and resistance level is defined clearly.
So remember, you have to use the moving average that works for the chart and not the other way around. I’m just preaching what I’ve learned over the past few years. You can decipher this info however you want.