BQLearning | What Are Moving Averages And How To Analyse Them
(Source: BloombergQuint)

BQLearning | What Are Moving Averages And How To Analyse Them

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BQ Learning is a special show that seeks to demystify financial markets, economic theories, legal processes and political structures.

In this series, we explain how technical analysis works; how to identify trading opportunities through it and decode various concepts associated with it.

Moving averages are used to gauge the direction of the trend but can’t be the lead indicator. It’s calculated by averaging a number of past price points. The resulting average is then plotted onto a chart to smoothen a data set rather than focusing on day-to-day price fluctuations.

The commonly used indicators are 200-day, 100-day and 50-day moving averages. Of the three, the 200 DMA is of greater significance as a price move can point to a reversal in trend.

Moving averages can indicate support or resistance levels.

A crossover of moving averages is another trend indicator. A buy signal occurs when a shorter-term moving average (like 50 DMA) moves above the longer moving average (200 DMA). This is also called the Golden Cross.

A sell signal occurs when the 50 DMA moves below the longer-term or 200 DMA. This is also called the Death Cross.

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