Thank you guys for the continued support on these threads.
This one will address SMA lines and how we can use them in our trading, not only as indicators but also to help us predict stock potentials.
Feel free to ask further questions in the comments!
Definition: A simple moving average (SMA) calculates the average of a selected range of prices, usually closing prices, by the number of periods in that range.
SMA lines are great indicators to use alongside other indicators. They can be great for predicting a coming reversal or a continuation of a trend!
By thinking of SMA lines as a soldier it is a lot easier to understand the difficulties stocks can often have crossing these key levels. It is also great for visualizing that once the SMA is broken, further continuation of trends becomes
easier.
The number one takeaway to have when it comes to SMA lines is that they are KEY LEVELS of RESISTANCES and SUPPORTS depending on what side the price currently lies.
The Golden Cross:
a technical chart pattern indicating the potential for a major rally, it appears on a chart when a stock's short-term moving average crosses above its long-term moving average.
The RSP Golden Cross:
A short-term adaptation of the Golden Cross that I learnt from @RadioSilentplay and the rest of the #RSP team.
Price prediction can be a hard part of creating a plan for a trade. While previous runs and gap fills can be great indicators for future prices, so can SMA lines due to the 'Path to least resistance'.
SMA lines are great but they can cause you to make rash decisions if you use them exclusively. For this reason, it is always smart to use SMA indicators alongside other indicators.
(A good general rule of thumb is to look for 3 separate indicators that all agree with each other)
The 8 and 21 MA are critical when it comes to predicting immediate trends. They can often be used for first indications of emerging trends (like with the RSP Golden Cross).
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Introduction to common trading patterns. The patterns covered here are different versions of consolidation that can be early indications of emerging trends.
There are two main types of patterns:
- Continuation
- Reversals
Before we can address patterns, there are basic terms that traders need to be aware and comfortable with.
- Support and Resistance
- Peaks & Troughs
- Trendlines
Additionally, the longer the price pattern takes to develop, the larger the price movement within the pattern.
The first type of pattern we will address is consolidation.
CONSOLIDATION PATTERNS: A temporary consolidation in an existing trend where the breakout movement is often in the same direction and the initial price movement.
We trade based on the Law of Infinite returns.
LOW RISK; HIGH REWARD
Information shared is not my proprietary knowledge but rather a collection of ideas from knowledgeable traders who have shared it with me: @RadioSilentplay@dantheholy
SET A FLOOR:
The floor is your safety net. By buying at or near a floor, we are able to mitigate risk and buy at the proven strongest levels of support.
Analogy: The Apartment analogy
SET A FLOOR:
The apartment in this case is much like a stock. Stocks have floors that are analogous to the 13th floor of the apartment. These floors are levels where demand (buys) ≥ supply (sells). If these floors were ever to break, this is a signal to get out of the trade.