The moving average has remained the most powerful method for analyzing and trading the market. Moving averages can be applied to a wide range of uses, from identifying market trend in any time frame, to detecting overbought or oversold conditions. They are easy to use and form the basis of many trend trading systems. There are numerous ways of calculating moving average mathematically: simple, exponential, weighted, time series, volume adjusted, and so forth. Over the years, many new innovative ideas have been added. The basic idea is to smoothen short-term price fluctuations to have a better picture of the main trend.

The periods commonly used for plotting moving average lines range from 2 days to 250 days. In this book, moving averages are categorized under three groups. The first group is the short-term period from 2 days to 9 days, the second group is the mid-term period 9 days to 34 days, and the third group is the 50-day to 250-day group. When a market is in a strong trend, prices will cross above all the averages of these three groups, and moving averages lines from each of the three groups will also follow suit. That is, the shorter period will also cross above the longer period. And the order of alignment is reversed when the market is very weak. When the market moves to an extreme level, whether bullish or bearish, prices will lead the directional change, and will be followed by the various moving averages. This is the ...

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