Why do technical analysts look at the moving average of a company’s stock price, and why do they look at trend lines? (Did you know that technical analysis is used for bond investing too?)
Why do technical analysts look at the moving average of a company’s stock price, and why do they look at trend lines? (Did you know that technical analysis is used for bond investing too?)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Why do technical analysts look at the moving average of a company’s stock price, and why do they look at trend lines? (Did you know that technical analysis is used for bond investing too?)
Expert Solution
Solution:
Moving Averages Analysis(MAA) is a tool which is helpful in determining the basic trend of the price movement in a scientific manner. Technical analysts working in this field are known as Moving Average Technicians or Rate of Change Technicians. They are capable of forecasting price movements in respect of individual stocks as well as market indices on the basis of analysis of moving averages of the price. Moving averages are of 50, 100, 200, etc.
Important indicators that shows the buy or sell signals based on MAA:
- BUY Signal:
- The 200-day MAA show a flat position and the specific stock price moves above the MA.
- Price of the stock goes down lower than the Moving Average Line(MAL), which shows the signs of rising.
- SELL Signal:
- Price of a stock upsurges above a declining MAL.
- The price of a stock declines and drops below through MAL, it shows a phase of reversal by a short-term upswing before declining again.
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