technical analysis


There are countless tools used in technical analysis.  One of the simplest and most helpful is the moving average.  In my charts, I tend to watch the simple moving average over 10, 20, 50, 100 and 200 periods.  I draw them as follows:

2014-12-15 SPX daily MA 061510:    red
20:    white
50:    blue (purple)
100:  yellow
200:  thick red

Note: the usage of “red-white-blue” makes it easier to quickly identify the more commonly involved lines on a crowded chart.  Also, I often show the USDJPY in purple on charts.  Not to be confused with the SMA50, it is rarely as smooth and curvy.

We can get a quick read on the big picture by looking at the daily moving averages.  If they’re all pointed in the same direction and are somewhat parallel to one another, that’s a strong trend.  On the other hand, if the 10-day is crossing the 20 (as above) or 50, then we’re setting up for a potential trend change.

I say “potential” because we also often see reversals at crossing points, particularly when TPTB are heavily involved in following a particular script.  This makes crossing points good potential targets, especially when they intersect with important Fibonacci levels.