Forex traders use moving averages for different reasons. Some use them as their primary analytical tool, while others simply use them as a confidence builder to back up their investment decisions. In this section, we'll present a few different types of strategies - incorporating them into your trading style is up to you!
Support and resistance?
Contrary to popular belief, stocks do not find support or run into resistance on moving averages. Many times you will hear traders say, "Hey, look at this stock! It bounced off of the 50 day moving average!"
Wrong!
Why would a stock suddenly bounce off of a line that some trader put on a stock chart? It wouldn't. A stock will only bounce (if you want to call it that) off of significant price levels that occurred in the past - not a line on a chart.
Stocks will reverse (up or down) at price levels that are in close proximity to popular moving averages but they do not reverse at the line itself.
So, suppose you are looking at a chart and you see the stock pulling back to, let's say, the 200 period moving average. Look at the price levels on the chart that proved to be significant support or resistance areas in the past.
Those are the areas where the stock will likely reverse.
Support and resistance?
Contrary to popular belief, stocks do not find support or run into resistance on moving averages. Many times you will hear traders say, "Hey, look at this stock! It bounced off of the 50 day moving average!"
Wrong!
Why would a stock suddenly bounce off of a line that some trader put on a stock chart? It wouldn't. A stock will only bounce (if you want to call it that) off of significant price levels that occurred in the past - not a line on a chart.
Stocks will reverse (up or down) at price levels that are in close proximity to popular moving averages but they do not reverse at the line itself.
So, suppose you are looking at a chart and you see the stock pulling back to, let's say, the 200 period moving average. Look at the price levels on the chart that proved to be significant support or resistance areas in the past.
Those are the areas where the stock will likely reverse.
