What does recent stock movement activity tell you? Do you know how to read a stock chart and see the trends? Understanding support and resistance points can be critical for understanding when to jump in or out of a stock. Let’s look at how to use Stock TickerPicker to work with Simple Moving Averages (SMAs) to do this.
Simple moving averages are averages of the last N periods (trading days) on a stock chart. Each day, you can take the last N days of trading, and average them out, and if you plot that each day, you get a trend line that is the simple moving average. N can be any number, but common numbers are 50, 100, and 200 – so people often look at 200-day moving averages, for example. Moving averages always move more slowly than the actual underlying stock price movement, since they are an average.
Stock TickerPicker for iPhone/iPad can display a variety of SMAs on the Price chart depending on what settings you have enabled. To turn them on/off, go to the Settings tab (see picture), press the “Price” button to edit that chart, and scroll down to “Simple Moving Average.”
As per the picture, you can turn on/off various SMAs by touching them. Here we have the 50-day and 200-day SMAs turned on. Each SMA is displayed on the charts in a different color.
Simple Moving Averages help (a) indicate the long-term stock direction, and (b) indicate support and resistance – if a stock hasn’t dropped below a given price in 200 days, that stands a good chance of being a support line, for example. A 50-day moving average, on the other hand, is faster moving and shows more recent activity. See the Stock TickerPicker chart for AAPL, displaying the 50-day SMA in green and the 200-day SMA in light blue. The 200-day SMA is at a lower price point than the underlying stock because over the past 200 trading days (~7 months), on average AAPL has been on an upward swing, and the lagging 200-day SMA hasn’t caught up yet. The 50-day SMA, on the other hand, started this chart below AAPL but then the stock fell faster and actually fell below the 50-day SMA, before settling out right around the 50-day SMA. There are many signals people look for with SMAs. One signal people look for is called a “death cross” – when the 50-day SMA falls below the 200-day SMA. This is an indication that support has been broken through by recent trading activity, and is generally a bad sign – a sell signal. There is a lot more to learn about SMAs, and we’ll cover more in future posts. Continue to Part II to learn about how SMAs show momentum and how moving average cross-overs can be good trading signals.