The significant points are where the averages cross one another, and it is at these points which we must pay attention, and try to draw some conclusions from the price action. The crossover point can represent the change in sentiment from rising prices to falling prices (or the other way round) but be careful - when you watch these averages they will often cross over and return on their original path, so they are not a reliable indicator and remember also they are lagging. So treat them purely as a rough guide to what is happening - not a hard and fast rule. They are there to give an early warning to pay attention - nothing else!!
In summary, a simple moving average is an early warning system of POSSIBLE future changes in direction. Read them in conjunction with your candlesticks and volume interpretation to see if the alarm can be validated by your analysis from the chart readings. Do not use them in isolation, or try to use them as some sort of indicator - you will fail! They are a rough guide ONLY - no more no less.
Monday, April 20, 2009
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