Moving averages are one of the oldest and most popular technical analysis
A moving average is the average price of a security at a given time. When
calculating a moving average, you specify the time span to calculate the
average price for X number of periods. For example, 20 periods. These
periods may be 5 minute bars, 15 minute bars, 60 minute or daily bars).
The classic interpretation of a moving average is to use it to observe
changes in prices. Investors typically buy when a security's price rises
above its moving average and sell when the price falls below its moving
The moving average crossover method calculates two moving averages, each
based on a different number of periods of trading data. When the
shorter-term (fewer days) average crosses above the longer-term average from
below, this is a buy signal for tomorrow's open. When the shorter-term
average crosses below the longer-term average from above, this is a sell
signal for tomorrow's open.
The current charts we are using calculate a 5-period and a 20-period
exponential MA of the closing prices on 60 minute bars. If the 5-period MA
crosses above (becomes greater than) the 20-period MA, you would buy the
next bars opening because the system is saying that an uptrend has begun.
You maintain this long position as long as the 5-period MA is greater than
the 20-period MA. When the 5-period MA crosses below the 20-period MA, the
trend is now down and you would liquidate your long position and establish a
new short position on the next bars open.
Lets look at BroadVision, Inc.
Just because a stock gets added to the S&P 500 does not mean it will
automatically go up.
We have seen big moves in JDSU when it was added and most recently BVSN when
it was announced last week.
But, I prefer to use technicals to tell me if I should be long or short a
Everything is in the chart.
BVSN broke to a Moving Average Sell signal today.
I anticipate the trend to continue down.
The ideal short would have been earlier in the day at 28.
If there is a small counter trend rally and I could get a Short off in the
27 ½ area, I would still short the stock.
I would place a stop at 28 ½.
The lesson here is use a trading plan and let the technical indicators tell
you what to do.