http://profitabletradingtips.com/day-trading/stock-trading-terms-102
Stock Trading Terms 102
In our introductory article, Stock Trading Terms 101, we talked about general terms that have to do with the stock market and trading stocks. Today we will look at gaining perspective and moving average as a route to successful stock trading. In Stock Trading Terms 101 we briefly mentioned bull and bear markets and noted that there are three distinct types of trends based on length.
• A secular trend lasts more than five years.
• A primary trend lasts for more than a year but less than five.
• A trend that lasts for a few weeks or months but less than a year is called a secondary trend.
At issue for someone who is trading in the trenches, so to speak, is not that he knows the definitions of these terms but that he uses these stock trading terms and underlying concepts to gain perspective.
Price versus Market Average
Often times we look at a stock chart and think that it is displaying random numbers. The price of the stock jumps up and it jumps down. There are ways to make sense of what can look like a random jumble of numbers on a stock chart. That is to use a moving average. The stock trading term in this case is the 52 week moving average. A 52 week moving average tells you where a stock is headed over time despite sometimes confusing daily fluctuations. The moving average helps traders who engage in range trading by helping define the likely limits to stock price within a given range.
Calculate a 52 week moving average:
Take a sum of the middle price for each day of trading for each trading day for the last fifty-two weeks. Then divide this number by the number of days of trading. Because this is a moving average you need to calculate this for every day by removing the earliest day and adding the previous day.
What is the use of stock trading terms such as a 52 week moving average? A stock trader superimposes the moving average for the last 52 weeks on the same chart as daily stock prices. When the current trading range lies above the average he considers the average line to be a support level below which prices are unlikely to drop. When the current trading range lies below the average he considers this average to be a resistance level above which the price of the stock is unlikely to rise. This is a technical analysis technique that can be effective even when the trader does not consult the fundamentals that are at the base of market prices. Rather this method helps the trader tap into market sentiment and exploit market inefficiencies.
Moving Average and Trends
If a market is in a long term secular upward trend, prices will likely continue to climb month by month and year by year. However, there are commonly secondary trends within a long term trend and they may tend to take the market down.
2. In our introductory article, Stock
Trading Terms 101, we talked about
general terms that have to do with
the stock market and trading
stocks. Today we will look at
gaining perspective and moving
average as a route to successful
stock trading.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
3. In Stock Trading Terms 101 we
briefly mentioned bull and bear
markets and noted that there are
three distinct types of trends based
on length.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
4. A secular trend lasts more than
five years.
A primary trend lasts for more
than a year but less than five.
A trend that lasts for a few weeks
or months but less than a year is
called a secondary trend.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
5. At issue for someone who is
trading in the trenches, so to
speak, is not that he knows the
definitions of these terms but that
he uses these stock trading terms
and underlying concepts to gain
perspective.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
6. Price versus Market Average
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
7. Often times we look at a stock
chart and think that it is displaying
random numbers. The price of the
stock jumps up and it jumps down.
There are ways to make sense of
what can look like a random
jumble of numbers on a stock
chart.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
8. That is to use a moving average.
The stock trading term in this case
is the 52 week moving average. A
52 week moving average tells you
where a stock is headed over time
despite sometimes confusing daily
fluctuations.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
9. The moving average helps traders
who engage in range trading by
helping define the likely limits to
stock price within a given range.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
10. Calculate a 52 week moving average:
Take a sum of the middle price for each
day of trading for each trading day for
the last fifty-two weeks. Then divide
this number by the number of days of
trading. Because this is a moving
average you need to calculate this for
every day by removing the earliest day
and adding the previous day.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
11. What is the use of stock trading
terms such as a 52 week moving
average? A stock trader
superimposes the moving average
for the last 52 weeks on the same
chart as daily stock prices.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
12. When the current trading range lies
above the average he considers the
average line to be a support level
below which prices are unlikely to
drop. When the current trading range
lies below the average he considers
this average to be a resistance level
above which the price of the stock is
unlikely to rise.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
13. This is a technical analysis
technique that can be effective
even when the trader does not
consult the fundamentals that are
at the base of market prices. Rather
this method helps the trader tap
into market sentiment and exploit
market inefficiencies.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
14. Moving Average and Trends
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
15. If a market is in a long term secular
upward trend, prices will likely
continue to climb month by month
and year by year. However, there
are commonly secondary trends
within a long term trend and they
may tend to take the market down.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
16. By looking at moving average for
the last two or three years, the last
year, and the last month, a trader
can get a clear idea as to whether
the market is overpriced or
underpriced.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
17. He then takes a contrarian
approach to trading and uses the
moving average to help him
buy, sell short, or trade options in
order to profit from a coming
market correction.
By: http://profitabletradingtips.com/day-trading/stock-trading-terms-102
