Moving Average Secrets 8, 20, 200

 

  Secrets of Moving Average 8, 20, 200

Secrets of Moving Averages 8,20,200

In trading, moving averages are one of the widely used technical indicators. As we all know they are lagging indicators. Then why are professional traders using moving averages in their trading system? Are they using it differently? What are the secrets behind the moving averages? Let’s find it out one by one.

20 EMA

We know that if the Candles are above the 20 moving average the stock or the index is bullish if the

20 moving average is rising and if the candles are above 20MA the trend is strong (bullish trend).

If the 20 moving average is falling and the candles are below it the bearish trend also strong.

 

20 moving average that goes flat for an extended period of time tends to lead to a trend reversal of the prior trend. If the 20 moving average is flat after the uptrend for a period, we can expect a trend reversal. If the 20 moving average is flat after the downtrend for a while, we can expect the trend reversal.

 

Mother and Child nature of 20 Moving average.

Like the child returns to his/her mother, the candles always return to the 20-moving average.

 If the candle is going away from the 20 moving average it tends to return to the 20 MA. It’s not ideal to take fresh positions When the candles are away from the 20 MA unless it’s a trending day.

 

Which moving average is best for the trending day?

8 MA plays an important role in trending days. In trending days candles will be far away from the 20 MA, such scenarios candles take support and resistance on 8MA, such days 8MA plays the role of 20 MA.

 

What is the importance of 200 MA?

Generally, 200 MA using to identify the major trend of the stock or index.

Professional traders use 200 MA to take rejection trades (scalping only), most of the time 200 MA rejects the candles. 200 MA is the powerful moving average, it’s not easy to break the 200 MA for the first touch. If the candles touch the 200 MA without enough volume for the first time, we can take a rejection trade.