50 Day Moving Average

In the following chart we have the perfect example of how a stock presented an over bought day trading indicator, followed by an over sold day trading indicator, with accompanying clues that the stock was preparing for a reversal.

Stock ABCD created a double top near the $31 range. A double top can be explained as an area where a stock stalls is unable to make a higher high, due to a prior resistance area.



Meanwhile as an astute stock market for beginners student, you already know that the stock is bound for a reversal when the 21 day moving average is far away from the 200 day moving average.

In the example above you have two clear day trading indicators that caused the stock to reverse.

• The double top.

• A wide distance between the 21 day moving average and the 200day moving average.

As a result of those two factors the stock created a draw down, which is represented by the blue over sold draw down arrow.

Stock ABCD carried on its downward move, until reaching an area where it needed to breathe after such an extended move. At this point we can gather that the stock experienced an oversold area and halted.

The over sold day trading indicator is evident in the move because after the absolute total control bar we see a bottoming tail, which represents that buyers have stepped into the stock.

There is a significant number of buyers which prevents the stock from trading any lower. This bottoming tail may also be created by tired sellers, who have profited from the trade and are closing out their positions.

The move higher is then halted for a short period of time at the 21 day moving average, this is because the moving average now serves an area of resistance.

Once the buyers have overcome this barrier the stock begins it's move up towards the 200 period moving average.

Stocks obey the 200 day moving average. Whenever a stock strays too far away from the 200 day moving average, it will eventually be pulled back towards this powerful moving average. These moving averages behave in the same fashion in all stock market time frames.

• Understanding the 20 Day Technical Analysis Moving Average
• Stock Market for Beginners: understanding the 50 day moving average
• So what is the 200 day moving average?
• the 200 period moving average, can lead to one of the most lucrative trades