[michiganborn]

Simple Moving Average
Tracks price average during time period → market psychology
Smoothes out day-to-day price fluctuations = tracks trends > how asset is priced relative to past ten days
SMA is the average of a number of past data points > 10-day = closing prices for ten days added together/10 > it then plots the values on chart and connects
Called moving b/c oldest points dropped as soon as new available
Critics argue SMA usefulness limited b/c each point is weighted the same > exponential moving average (EMA) gives more weight to recent prices

Settings: Buying = 10-day MA gives early buy signal
Watching = 50-day

Strategy: Buy when price moves above SMA line



MACD
Indicates market trend of a stock
= combination of two moving averages (fast and slow) and how they interact
8-17-9 > first line is difference b/w 8 & 17 day moving averages (MACD); the second is the 9 day moving average
Crossover tells you whether there is a trend and how strong > the higher above the centerline the stronger the trend; if crossover occurs below center line, trend not nearly as strong

Settings: Buying = 8-17-9 (more responsive for detecting big price jumps)
Watching = 12-26-9 (longer term trends)

Strategy: Buy when MACD (red) crosses above 9 day moving average (blue) = buy at beginning of mountain and sell as mountain going down


Stochastic Indicator
Tracks overselling/buying of a stock = market momentum
First number covers # of periods (usually 14 days); second is trigger EMA (usually 5)
Oversell = too much supply = price goes down; overbuy = too many buyers = price up
When stochastic moves below 20th percentile stock is getting oversold; when it moves up through 20th percentile it shows instl investors starting to buy = price going to go up; when it moves up through 80th, stock is overbought; when it moves down from 80th instl investors are selling and price likely to drop
Stochastics plotted against 5 day EMA to provide trigger points: trigger = the crossing

Settings: Buying = 14-5-0
Watching = ignore (only short-term indicator)

Strategy: Buy when crosses up over 20th
Sell when crosses down through 80th
*these signals usually preceded by a crossing w/ EMA = early warning