DIY cookbook 2. How to stop losing money in stock market.

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In the last lesson we spoke about trend lines. Today we will talk about moving average.

A moving average is an average of the stock price over a given period of time. You will find some free charting tool like the one that I am using. You can also get a charting tool from your broker and usually it is free. Now what should you do?

  1. Open your stock on the chart. It is automatic. You will have to just select the name of the company.
  2. Select the EMA (Exponential Moving Average) option and select the number of days. In the chart above I have selected 200 days.

Once you have done this you will find the stock price crossing the moving average at times. Your objective is to consider the moving average as a level. If your stock goes below the average you sell.

Note: Just like trend lines consider the EMA that touches most of the bottoms of the chart. For that you will have to change the number of days of the EMA and see which one is the best. There is also SMA or Simple Moving Average but EMA or Exponential Moving Average is more accurate.

Give it a try, it’s not that hard and tell us what you think about it.

The above chart was drawn with Big Charts

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