Finally, final post is here. Moving Averages took longer then expected but I am happy that I did not rush it through and covered all that matters. I hope that you guys are also liking it (sadly your comments or lack of them don't show that) and would be ready for such details. So let us say adios to MAs with this post.
Support and Resistance
MAs also act as Supports in an uptrend and Resistance in a downtrend. As usual short duration MA (20d) acts as Support or Resistance for Short Term trend. Long Term MA like 200D, which is most popular and widely used, acts as Support or Resistance for Long Term trend.
The chart above shows the price taking support at 200 EMA on multiple occasions. After trying three times it finally breaks the support with huge volumes and very decisively on a freak fall day. Such is the strength of 200 MA Support or Resistance. It takes some doing to break it usually.
Let us also see a case where MA line is acting as Resistance. See below;
One thing which many people tend to forget is Market do not work on logic, they work on sentiment and so one should not take Support and Resistance levels from MA lines as rigid. They should think of MA value as a region when Support (uptrend) or Resistance (downtrend) will be present. Little bit of up and down should not be considered as violation of Support or Resistance.
Conclusion
We should remember that Moving Averages are;
1. Lagging Indicators: So you will get signals after prices have already changed
2. Are ineffective in a range bound market
3. Will not help you buy at bottom and sell at top as they tend to be followers
4. Should not be used alone (in isolation) and they must be supported by other tools / indicators
As I have repeated many times that, with me, there always is a risk of being wrong. So while following this tutorial you are requested to verify its correctness independently... that pinch of salt and all that.
Hope you have enjoyed reading about MAs as much as I have enjoyed writing about them.
Today was a difficult call as I was thinking about doing a post on Infosys / TCS saga and analyse their results. But then I had promised in the last post about finishing MAs quickly and not keep you waiting. Since the childhood I have believed that 'Promise Breaker - Shoe Maker' and honestly I don't have any aptitude in shoe making and I will really be bad at that. So I spared myself and decided for MA. Do let me know what you think though.
You have made the subject very easy to understand even by a novice like me. Many thanks for the efforts. Regards,
ReplyDeleteSir, you are being modest calling yourself a novice. You appear to be pretty senior in the investments profession. I am glad that you liked this blog. Thanks for your comment.
ReplyDeleteThanks for the nice post.. what is the next topic
ReplyDelete