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Technical analysts and traders believe that certain stock chart
patterns and shapes provide signals of profitable trading
opportunities. Many professional and amateur traders claim that they
consistently make trading profits by following such signals.
The evolution of stock prices over time can be seen as a shorter-
term, random oscillation, on top of a longer-term trend. Most stocks
show a rather "rhythmic" short-term oscillation with a typical cycle
of about 14 to 25 days. If we believe that such a cycle does exist,
we should bet that the stock price will continue to go through the
moving average line after it is crossed.
A stock that crosses down through its 20-Day Moving Average with
large momentum is likely a down pattern.
For a stock in an obvious long-term trend, the 50-day moving average
line usually damps out most of the shorter-term oscillations;
therefore, this can be used as a reliable "moving support line." A
good trading strategy is to buy the stock if it is in an up trend and
if the price bounces back up after it touches or lightly penetrates
the 50-day moving average.
The 50-day Moving Average is often used as a moving support line for
stocks in an up trend. Technical traders think that it is a strong
buy signal if the stock price bounces back after reaching the support
line.
The corresponding opposite trading strategy is to "short" the stock
if it is in a down trend and if the prices drops back down after it
touches or lightly penetrates the 50-day moving average.
http://clix.to/wallmann
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