| Mastering the art of reading stock charts is in my | | | | to get "whip lashed" if you are a longer term investor |
| opinion essential to making money when buying and | | | | but you are focused on shorter term moving |
| selling stocks. Let's take a look at one of the most | | | | averages. |
| important features of stock charts: | | | | So longer term investors don't want to be buying |
| Identifying the Trend - Often times, at a very quick | | | | and selling every time the 20 day moving average |
| glance, one is able to identify whether a stock is | | | | crosses over the 50 day moving average. |
| trending up, down, or not at all. Just by looking at the | | | | However, many investors base their buy, sell and |
| movement of a stock price, one can easily see if | | | | hold strategies on various crossovers - or the |
| there are higher highs and higher lows for an upward | | | | absence of any crossover. Often times several |
| trending stock. And the converse would hold true for | | | | moving averages will "bounce off" or "touch" another |
| downward trending stocks. | | | | moving average. But it's important that the moving |
| Moving Averages - Another good way to discover | | | | average actually crosses over before it triggers a |
| which way a stock is trending is by using a 20, 50 | | | | buy or sell action. |
| and 200 day moving average. You do this by | | | | Timing Your Purchases and Sales - If you own shares |
| selecting the moving average option when setting up | | | | in a stock that is trending down, this may be a very |
| your software. Again, you can easily see if the | | | | good time to sell them and move on. However, |
| moving average lines are trending up or down and if | | | | depending upon your time horizon, you may want to |
| there are any crossovers. | | | | add to your holding as the stock price moves down. |
| Moving Average Crossovers - A crossover occurs | | | | Of course, you are still hoping to buy a stock that is, |
| when one of the moving average lines crosses over | | | | or eventually will, move upward. |
| the other. For example, about January of 2008, the | | | | If you notice that a stock is trending up, this may be |
| DJIA 50 day moving average crossed downward | | | | the perfect time to jump on board and buy some |
| over the 200 day moving average. For the next 10 | | | | shares. The earlier you buy it in an upward trend, the |
| weeks or so, the DJIA trended downward before it | | | | more money you will make when you sell it. |
| started to advance upward. | | | | It's usually not a good idea to do "bottom fishing" |
| There can be many crossovers depending upon the | | | | unless you have the capital and emotional stamina if |
| time frame you are looking at as well as the number | | | | you see the stock price move even lower. Many |
| of days you select. A 200 day moving average will | | | | investors never buy into stock that is on its way |
| appear to be more stable whereas the 20 day | | | | down; if they really want it, they wait until there is a |
| moving average may jump up and down. It is easy | | | | "definite" upward trend. |