No matter what style of trading or investing you do, there should always be more than one reason to take a position on a stock to ensure you are stacking the odds in your favour thus securing a long term future in trading.

A very powerful tool to use is Moving Averages (MAV). Nearly all basic charting software will have MAV built into them. A MAV can help indicate the direction of the stock. For example, the right MAV on a chart would show all bull moves above the MAV and all bear runs trading below the MAV.

The first thing to consider when placing a MAV on a stock you would like to trade is the length of time you want to be in the trade. Are you looking to take advantage of short moves of a week or so, or, are you wanting to invest in a stock for the next few years to get the most out of it? Once this is determined, it will give you a starting point.

Say you are looking at short term moves, chose small number MAV’s such as 8, 10 15 or any other number around this area. Place different ones on your chart and see which fits best and captures most of the move from past data. Buy when the stock breaks above and sell when it closes below. For medium term of say a few months to a year use a larger number and for long term buy and hold choose a larger number again.

The cart below has 3 different averages on it displaying the short, medium and long term moves a MAV can capture.

Remember each stock has it’s own personality and will therefore use different MAV’s to other stocks. This coupled with other information about the stock or chart you are reading can be a very powerful tool in trading and is well worth spending a few hours back testing to find some valid averages.

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