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How to Spot Stock Trends with Simple Moving Averages

What does recent stock movement activity tell you? Do you know how to read a stock chart and see the trends? Understanding support and resistance points can be critical for understanding when to jump in or out of a stock. Let's look at how to use Stock TickerPicker to work with Simple Moving Averages (SMAs) to do this.

What Are Simple Moving Averages

Simple moving averages are averages of the last N periods (trading days) on a stock chart. Each day, you can take the last N days of trading, and average them out, and if you plot that each day, you get a trend line that is the simple moving average. N can be any number, but common numbers are 50, 100, and 200 - so people often look at 200-day moving averages, for example. Moving averages always move more slowly than the actual underlying stock price movement, since they are an average.

How to Turn on Simple Moving Averages in Stock TickerPicker

Stock TickerPicker for iPhone/iPad can display a variety of SMAs on the Price chart depending on what settings you have enabled. To turn them on/off, go to the Settings tab (see picture), press the "Price" button to edit that chart, and scroll down to "Simple Moving Average."

As per the picture, you can turn on/off various SMAs by touching them. Here we have the 50-day and 200-day SMAs turned on. Each SMA is displayed on the charts in a different color.

How to read Simple Moving Averages

Simple Moving Averages help (a) indicate the long-term stock direction, and (b) indicate support and resistance - if a stock hasn't dropped below a given price in 200 days, that stands a good chance of being a support line, for example. A 50-day moving average, on the other hand, is faster moving and shows more recent activity. See the Stock TickerPicker chart for AAPL, displaying the 50-day SMA in green and the 200-day SMA in light blue. The 200-day SMA is at a lower price point than the underlying stock because over the past 200 trading days (~7 months), on average AAPL has been on an upward swing, and the lagging 200-day SMA hasn't caught up yet. The 50-day SMA, on the other hand, started this chart below AAPL but then the stock fell faster and actually fell below the 50-day SMA, before settling out right around the 50-day SMA. There are many signals people look for with SMAs. One signal people look for is called a "death cross" - when the 50-day SMA falls below the 200-day SMA. This is an indication that support has been broken through by recent trading activity, and is generally a bad sign - a sell signal. There is a lot more to learn about SMAs, and we'll cover more in future posts. Continue to Part II to learn about how SMAs show momentum and how moving average cross-overs can be good trading signals.

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