Tuesday 22 June 2010

200Day Moving Average

Granville a respected analyst lists eight basic rules for interpreting the 200 day moving average charts.

1. If the 200 day average line flattens out or advances following a decline, and the price of the stock penetrates that average line on the upside, this constitutes a major buying signal.
2. If the price of the stock falls below the average line while the average line is still rising, this also is a buy signal.
3. If the stock price is above the 200 day line and declines towards it, but fails to go through and instead it turns up again, this is a buying signal.
4. If a stock price falls too fast and far below a declining average line, a short term rebound towards the line may be expected.
5. If the average line flattens out or declines following a rise, and the stock price penetrates that line on the down side, this constitutes a major selling signal.
6. If the price of the stock rises above the average line while the average line is still falling, this also is a selling signal.
7. If the stock price is below the average line a rises towards it, but it fails to go through and instead turns down again, this is a selling signal.
8. If the stock price rises too fast above a rising average line, a short term reaction may be expected.