So many people often wonder when is the best time to enter a trade they would often say “is now the right time buy” and enter too early or “I need to wait for the right time to buy” , then miss out. Did you know that there is actually an indicator that can solve this very problem? Well there is its called a moving average.
Used correctly this indicator can significantly improve your ability in “Timing the market” by identifying the specific point the tend changes giving the trader inside into the future. A moving average simple averages out the stock over a period of time essentially smoothing out the highs and lows of the trend.
The most effective use of the moving average is when two moving averages are set up side by side one that is longer and the other that is shorter therefore the shorter moving average would be more volatile and move more where the longer moving average would be see volatile and move slowly see below.
This is when the opportunity arises for trades ‘to time the market’ better because the shorter moving average reacts faster than the longer moving average it acts as a signal to investors. If the short term moving average rises above the long term average it is known as a “golden cross” and signals a bullish buying signal for investors that prices will rise as the shorter moving average would always react first and then the longer moving average will follow. This can also be used the opposite way round if the shorter moving average falls below the long term average known as a death cross.
I encourage everyone do try this for themselves go to any stock or commodity place a 50 day moving average and a 200 day moving average and see if you can spot the golden crosses or death crosses.