How to Determine Trends Using Moving Averages

Do you want to know more about trend indicators and how to identify trends? Watch our latest video to find out how to determine trends using moving averages and get profitable trading results.

Determine Trends Using Moving Averages – A simple explanation

Moving averages are simply mathematical equations all the average price over the last “X” candlesticks. In other words, if you have a 20 day moving average, it plots on your chart the average price over the last 20 candlesticks on a daily chart. Moving averages are thought to be indicative of where the market is most comfortable, and is used as a smoothing indicator.

You can use them to determine which direction the trend is going; as short-term volatility can sometimes make that a bit difficult. There are several different theories on which moving averages are best to use, but there are some standards that people tend to follow. The 50, 100, and 200 day moving averages are very common for longer-term traders, as they represent short-term, medium-term, and long-term momentum in general. Quite often, these moving averages can act as support or resistance due to the fact that so many people pay attention to them.

On the chart in the video, I am following Coca-Cola and I have a 200 day moving average plodded on the chart in orange. This moving average is below current pricing, and that suggests that we are still very much in an uptrend. We are above the 200 day moving average, and the moving average is tilting towards the upside meaning that it is starting to pick up momentum to higher levels.

As long as we stay above that level, most long-term traders will simply only buy this particular asset as opposed to look for selling opportunities. It doesn’t mean that this market can’t fall, it just shows that the overall proclivity of this market is to continue going higher. Most traders will look at a chart like this and then start to look for shorter-term buying opportunities. With fact, you know that your following the longer-term uptrend.