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I have read about simple moving average. However I am still not able to analyse on how to use it in equity(Stocks).

I have read about many SMA, 5 day SMA, 10 day SMA and 200 day SMA. However want more clarity on that

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  • Please elaborate further on what you mean by equity and what you are trying to measure.
    – NL - SE listen to your users
    Commented May 8, 2015 at 16:57
  • here equity means stocks
    – Partha Bisoi
    Commented May 8, 2015 at 17:00
  • So you're specifically interested in the SMA of the price?
    – NL - SE listen to your users
    Commented May 8, 2015 at 17:01
  • yes. analyzing the price trend
    – Partha Bisoi
    Commented May 8, 2015 at 17:02

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A shorter term MA would be used for short term changes in price whilst a long term MA would be used for longer term movements in price.

A 200 day SMA is widely used to determine the trend of the stock, simply a cross above the 200 day SMA would mean the stock may be entering an uptrend and a cross below that the price may be entering a downtrend. If the price is continuosly going above and below in a short period of time it is usually range trading.

Then there are EMAs (Expodential Moving Averages) and WMAs (weighted moving averages) which give more emphasis to the latest price data than the earlier price data in the period chosen compared to a SMA.

MAs can be used in many different ways, too many to list all here. The best way to learn about them is to read some TA books and articles about them, then choose a couple of strategies where you can use them in combination with a couple of other indicators that are complimentary with each other.

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One of the most obvious uses of SMAs is the detection of a trend reversal. A trend reversal happens when a short term SMA crosses over a longer term SMA. For example, if a 20 day moving average was, previously, above a 200 day moving average, but has crossed over the 200 day and is currently below the 200 day then the security has performed a 'death cross' and the trend is for lower and lower prices.

Stockcharts.com has excellent 'chart school' for the beginning chart user. They also provide excellent charts. Here is a link:

http://stockcharts.com/school/doku.php?id=chart_school

I like to use a 20 day SMA, a 200 day SMA, and a 21 day EMA.

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