50 Day Moving Average

Moving averages can also act as over bought and over sold day trading indicators in the market or in a particular stock. The example below presents a stock that has an over sold day trading indicator.

The 21 day moving average at the peak of the stock’s run is at $18.51 and the 200 day moving average is at $17.52, while the high of the stock is at $18.95. When exploring the concept that the 200 day moving average acts like a magnet for the lower period moving average. Eventually the 21 day moving average or the 50 day moving avarage is pulled closer to the 200 day moving average and in turn bringing down the price.

If you were a trader trading this stock, the first thing you would have had to pay attention to was:

1. The stock signaled a tail after the green bar at $18.95 price range.
2. Following the tail the stock produced a red bar, as the sellers stepped in to drive the price lower.
3. The 21 day moving average was far away from the 200 day moving average, therefore, a reversal is likely to happen.

The 50 Day Moving average and the 20 Day Moving Average are a reliable day trading indicators which can be used to find reversal opportunities, entry opportunities and exist opportunities.

As you can see in the chart above, once the stock traded lower producing a red bar, there was a violent reversal back towards the 200 day moving average. This put an end to the temporary uptrend and carried on trading lower.

The 21 day moving average followed the stock downwards, until the 21 day moving average reached the 200 day moving average, at which point the stock attempted to make a reversal at $17.65-$17.30, this attempt also failed and as the stock's price continued to drop.

Stock Market Trading Tips: Always pay attention to the position of the lower moving averages in relation to the 200 day moving average. The 200 day moving average is the supernatural being in the stock market and has to be watched closely.

• Understanding the 20 day Technical Analysis Moving Average
• Stock Market for Beginners: understanding the 50 day moving average
• 3 200 Moving Average Rules That Should Never Be Broken
• Understanding the Psychology of the 200 Day Moving Average