But it can help an investor identify the bulk of a trend. Each day, the average changes because the oldest day is subtracted, while the current dayвЂ™s information is added.Д«ecause the SMA is a lagging indicator, the crossover technique may not capture exact tops and bottoms.

To calculate the 50-day SMA, add up the stockвЂ™s closing price from the last 50 days and divide the total by 50. How are moving averages calculated? LetвЂ™s take the 50-day simple moving average (SMA). You can see the movement of a stockвЂ™s average price over time in relation to the actual stock price, which at times may trade above or below its moving average line. WhatвЂ™s the difference? The shorter the moving average, the shorter the trend it identifies, and vice versa (see figure 1).ДЄ moving average is a trend-following indicator that helps you determine whether the вЂњaverageвЂќ price in a given time period is trending up or down. You might choose a 10-day, 50-day, or 200-day moving average. They may even conflict with one another from time to time.ДЄlso, there are different time periods associated with moving averages. But bear in mind that trends can change, and other indicators can also be used to interpret trend direction. If a stock price is above the SMA, and if the SMA itself is moving upward, then there may be a stronger likelihood that youвЂ™ve identified an uptrend. Downtrend: If the stock price is below the moving average and that MA is moving lower, you might be looking at a downtrend.Д¬aveat: These principles are intended to help you interpret the potential direction of a trend, not to definitively call its direction.Uptrend: If a stock price is above a simple moving average and that SMA is moving higher, you might be looking at an uptrend.

When might a trend be ending or reversing?.

Where might be a potential entry point for a trend trade?.

Which direction might the market be trending (if at all)?.

If the trend is indeed your friend, to cite an ancient trading maxim, how can a SMA crossover system help? Start with three questions: Some stock moves are short-lived, while others last for weeks, months, or even years. A technical tool known as a simple moving average (SMA) crossover can help you identify the lionвЂ™s share of a trend. As in the ocean, markets have both tiny and huge waves, and some in between. Over time, they change, sometimes moving faster than at other times.ДЇor our purposes, a trend can be defined simply as the general direction of a market over the short, immediate, or long term. Whether weвЂ™re talking about a blue-chip stock or a T-bone steak, prices donвЂ™t sit still. Prices are constantly moving, forming small and large waves which, in finance-speak, are called вЂњtrends.вЂќ Markets and trends are inseparable. Markets are dynamic, just like the ocean. You have to know when to get in and when to get out when to go big, and when to go home. For either pursuit, recognizing and riding that big wave is crucial to your strategy. Surfers and traders share at least a few common traits (if you fall into both categories, we salute you). So before you jump in, paddle out for a moment and letвЂ™s take a closer look at the swells. Whether youвЂ™re surfing the waves on HawaiiвЂ™s North Shore or the volatile markets on the trading screen, failing to catch the right wave at the right time can leave you vulnerable to a nasty wipeout.

Using two simple moving averages can help you select entry and exit points.

A simple moving average (SMA) can help indicate the direction of a given trend.

Markets often comprise short-term, intermediate-term, and long-term trends.

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