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💹 Series 8: Mastering Technical Analysis

Day 3 – Moving Averages: The Simple Secret Behind Trends

When I first looked at a price chart, I remember feeling lost.
There were candles jumping all over the place, wicks poking up and down, and price seemed to behave like a wild roller coaster.

Some days it went up too fast.
Some days it crashed out of nowhere.
And I kept asking myself, How do traders make sense of all this noise?

Then I discovered something that changed everything.
It was a simple tool that almost every professional trader uses.
A tool so powerful that once you understand it, the whole chart starts to look clearer.

That tool is the moving average.

Today, I want to help you see this tool the same way I do—simple, clear, and extremely useful.

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⭐ What Exactly Is a Moving Average?

A moving average is a line drawn on a chart that shows the average price over a certain number of days.

For example:

• A 20-day moving average shows the average price of the last 20 days.

• A 50-day moving average shows the average price of the last 50 days.

• A 200-day moving average shows the long-term trend over 200 days.

This line moves forward every day as new prices appear.

Think of it like smoothing out the rough waves in the ocean.
Instead of focusing on every big splash, the moving average lets you see the overall direction of price.

It takes something messy… and makes it clean.

⭐ Why Moving Averages Matter So Much

There are thousands of indicators in the world.
But moving averages remain one of the top 3 most-used tools of all time.

Why?

Because they do three things extremely well:

1. They Remove Noise

Charts without moving averages look chaotic.
Candles go up and down in ways that can trick your eyes or emotions.

When you add a moving average, suddenly the picture becomes clearer.
You see whether price is generally moving up or down.

It’s like switching from a shaky hand-held video to a smooth, stabilised shot.

2. They Reveal the Trend Instantly

If the moving average is pointing up → the trend is up.
If it’s pointing down → the trend is down.
If it’s flat → the market is moving sideways.

This sounds simple, but trust me, this is life-changing.

Most losing traders lose because they trade against the trend.
Moving averages prevent you from fighting the market.

3. They Help Traders Time Their Entries

You don’t need to guess anymore.

Price tends to:

• Bounce at moving averages

• Pull back to moving averages

• Break out above/below moving averages

• Respect moving averages as support or resistance

If you master this alone, your trading confidence will grow immediately.

⭐ Types of Moving Averages: SMA vs EMA

There are two main types you’ll see:

1. SMA – Simple Moving Average

This takes all the prices in the period and gives equal weight to each day.

Example:

A 10-day SMA adds up the prices of the last 10 days and divides by 10.

It’s smooth.
It’s popular.
And it’s easy to understand.

2. EMA – Exponential Moving Average

The EMA gives more weight to recent prices.
This makes it “faster” and more sensitive to price changes.

Traders who want quicker signals prefer EMAs.
Traders who want slower, stable signals prefer SMAs.

There is no right or wrong.
It depends on your style.

But you should understand both.

⭐ The Three Key Moving Averages Every Trader Should Know

Although you can use many different moving averages, there are three that almost every trader pays attention to.

Let me break them down.

1. 20-Day Moving Average (Short-Term Trend)

This one shows the recent trend.
Short-term traders love this MA.

It helps you see:

• Short-term momentum

• Quick pullbacks

• Early trend changes

• Fast signals

When price stays above the 20-day MA, it often means strong buying pressure.
When price stays below it, selling pressure is stronger.

2. 50-Day Moving Average (Medium-Term Trend)

This is the “sweet spot” for many traders.

It’s not too fast.
It’s not too slow.
It shows the medium-term health of the stock.

Many big funds and institutions also watch the 50-day MA.
When price bounces off the 50-day MA, it’s often a sign of strong trend continuation.

3. 200-Day Moving Average (Long-Term Trend)

This is the king.

The 200-day MA tells you whether a stock is in a long-term uptrend or downtrend.

When price is above the 200-day MA → the market is healthy.
When price is below it → long-term weakness may be present.

Many traders won’t buy a stock trading under the 200-day MA because it signals danger.

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⭐ Moving Averages as Support & Resistance

One of the coolest things about moving averages is that price often reacts to them like invisible walls.

Let me explain.

Support

When price is in an uptrend, moving averages often act like a floor.
Price dips towards the moving average but doesn’t break below it.

This is where many traders buy.

Resistance

When price is in a downtrend, moving averages often act like a ceiling.
Price moves up towards the moving average but gets pushed down.

This is where traders sell.

Once you see this pattern happening on charts, you’ll never unsee it again.

⭐ Mastering Trend Direction with Moving Averages

This is where moving averages really shine.

You can instantly tell the direction of the market just by looking at the slope of the line.

When the Moving Average Slopes Up

Trend: Uptrend
Meaning: Buyers are in control
Action: Look for buying opportunities

When the Moving Average Slopes Down

Trend: Downtrend
Meaning: Sellers are in control
Action: Avoid buying or look for short opportunities

When the Moving Average Is Flat

Trend: Sideways
Meaning: No strong buying or selling pressure
Action: Be patient and wait for a breakout

This alone removes a lot of emotional mistakes.

⭐ Moving Average Crossovers — A Popular Strategy

A crossover happens when a faster moving average crosses above or below a slower moving average.

The two most common are:

Golden Cross

• The 50-day MA crosses above the 200-day MA

• Signals: Long-term uptrend may begin

Death Cross

• The 50-day MA crosses below the 200-day MA

• Signals: Long-term weakness may begin

Many traders use these as confirmation signals rather than immediate entries.

It’s not magic.
It’s just evidence of trend momentum building or weakening.

⭐ Pullback Trading Using Moving Averages

This is one of my favourite strategies because it keeps things simple.

Here’s the basic idea:

1. Identify the trend using moving averages

2. Wait for price to pull back toward the MA

3. Look for a candlestick pattern or confirmation

4. Enter once the pullback shows signs of ending

This keeps you from chasing price.
You wait for price to come to you instead.

⭐ How to Avoid the Biggest Moving Average Mistakes

A lot of beginners mess up with moving averages because they use them incorrectly.

Let me help you avoid those mistakes.

❌ Mistake 1: Using Too Many Moving Averages

Your chart becomes a spaghetti bowl.
You get confused.
You hesitate.

Less is better.
Stick to 2–3 main ones.

❌ Mistake 2: Trading Every Touch of the Moving Average

Price can touch the MA many times.
Not every touch is a signal.

You need confirmation:

• Volume

• Candlestick patterns

• Trend direction

• Support/resistance alignment

❌ Mistake 3: Ignoring the Bigger Trend

If the 200-day MA shows a downtrend, but your short-term MA slopes up, be careful.

Short-term movements can trick you.

Always start with the big picture.

❌ Mistake 4: Using Moving Averages in Ranging Markets

MA signals work best during trends.
In sideways markets, crossovers and touches can be misleading.

Learn to identify the environment first.

⭐ A Simple Moving Average Strategy You Can Start Using Today

Here’s a simple framework I personally use:

✔ Step 1: Identify the Long-Term Trend

Check the 200-day moving average.

• Uptrend: price above 200-day MA

• Downtrend: price below 200-day MA

✔ Step 2: Identify the Medium Trend

Check the 50-day MA.

• It should align with the long-term trend

• If not, be patient

✔ Step 3: Time Your Entry with a Short MA

Use the 20-day MA for pullbacks.

• Price pulls back to the 20-day

• Forms a reversal candle

• Volume confirms buyers

This strategy is simple, but very powerful.

⭐ Why Moving Averages Work (Even If They Look Too Simple)

Moving averages are based on a simple truth:

The market trends more often than people think.

Most beginners expect price to move wildly all the time.
But pros understand that strong trends can last months or even years.

Moving averages help you identify these trends early and stay with them longer.

And this is why so many traders love them.

They turn complicated charts into clear, understandable stories.

Final Takeaways

If you take away one thing from today’s lesson, let it be this:

👉 Moving averages simplify the market and help you follow the trend with confidence.

They won’t predict the future.
But they give you clarity.
They keep you on the right side of the market.
And they help you avoid emotional decisions.

Once you master moving averages, reading charts becomes less stressful and more logical.

This is one of the most important tools in your technical analysis journey, and now you understand how to use it.

🚀 Call to Action

If today's lesson helped you see charts more clearly, wait until you see what’s coming tomorrow.
Day 4 will take you deeper into Support & Resistance, the backbone of chart analysis.

Before you go:

If you know someone struggling to understand charts, share this mini-course with them.
Help them grow their financial knowledge and build confidence the way you are doing now.

Let’s grow smarter, wealthier, and stronger together.
See you in Day 4!

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DISCLAIMER

I make no representations, warranties, or guarantees, whether expressed or implied, that the content provided is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

I am an individual content creator and not regulated or licensed by the Monetary Authority of Singapore (MAS) as I do not provide investment services.

All forms of investments carry risks, including the risk of losing your entire invested amount. Such activities may not be suitable for everyone. You are strongly encouraged to seek advice from a professional financial advisor if you have any doubts or concerns.