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I have calculated moving averages i.e. SMA, WMA , EMA for stock which I am going to buy. I have infered :

If you are long term investor it is better not to retain the share as price is decreasing as shown by both SMA and share price itself of 90 days. SMA of 20 days shows that in short term price is increasing but would meet 90 days SMA hence showing decreasing short term price (figure 2). Since WMA is decreasing sharply as we have taken 3 days average with high rating for current price and it would show that 3 days price is decreasing trend. But 20 days EMA suggest that now the stock price is going to stabilize and increase to previous value whereas 90 days EMA suggests that for long term investor the stock investment is good.

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Am I right?

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    In my opinion, no. For long term investing (which is what you asked about: "If you are long term investor"), the type of short term price movement you talk about is meaningless. – blm Oct 17 '15 at 16:45
  • @blm I used to agree with that but I'm starting to think that using technical measures to get best execution for something that you want to hold for a long period will help to maximize return. – MD-Tech Nov 17 '15 at 9:30
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    @kinkajou Do you have any reference for your rule? It would be easier to evaluate what if what your analysis fits if we know which of the multitude technical analysis schemes you are trying to do. – rhaskett Nov 17 '15 at 18:54
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Moving Average is mere average line based on historical period; broadly use to view the trend. But it has no relation to price action in due future course. If price is going below 20 SMA then in near future even the SMA will start directing toward south. In your case if price has fallen below all the short period average lines and long period average line then it is bearish in nature. Soon in few days you may find 20 SMA leading downwards followed by closest period and then long. Also SMA and EMA can best be observed in charting software in candlestick mode. Because these moving averages can also be adjusted and viewed based on Opening price, High prices, Low Price or closing price. In you case I guess the data is of closing price data. Overlapping of averages may be sign of reversals. So if you want to buy this stock you may have to wait till all the average lines cross-over and when new trend begins with SMA of shortest avg period (20) leading above the long avg period (90 days in your case). Then you can buy and just follow the trend. I hope it answers you question.

  • Should I compare 90 days SMA with 20 days SMA or respective EMA or EMA with SMA? – kinkajou Oct 18 '15 at 13:48
  • What I do is, if the security pays dividends every month, compare the 21 day EMA to the 63 day EMA, looking for crossover. I do this with a MACD plot, which uses EMA. I use 21 and 63 as there are (on average) 21 trading days in a month (and, therefore, 63 trading days in a quarter). Here is an example at Stockcharts.com (click on link) – Jack Swayze Sr Mar 24 '16 at 10:40
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One could use technical indicators in any number of ways...they aren't rigidly defined for use in any particular way. If they were, only computers would use them.

Having said that, moving averages are frequently used by people operating on the assumption that short-term price movements will soon be reverted back to a longer-term mean. So if the price shoots up today, traders who use moving averages may believe it will come back down pretty soon. If this is the belief (and it usually is for this type of trader), a price significantly above a moving average could indicate an overpriced stock. A price below the moving average could indicate an underpriced stock.

Similarly, a short-term moving average above the long-term moving average may indicate an overpriced stock. When you are dealing with more than one frequency, though, there is more disagreement about how to use technical indicators. Some traders would probably say the opposite: that a short term average above the long term average indicates an upward movement that will continue because they believe the stock has momentum.

Note that I am not saying I believe in using these averages to predict mean reversion or momentum effects, just that traders who rely on moving averages frequently do.

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If you are going to be a long term investor you are only going to buy and hold. You will not sell. Thus future price is not relevant. Only dividend payout is relevant. Divide the dividend by the price you paid to get the yeald.

Edit: once again the sitesite will not allow me to add a comment, so I have to edit a previous post...

What you call 'active investor' is not really investing, it is speculating. When you try to 'buy low, sell high' you have, at best, a 50-50 chance of picking the low. You then pay a commission on that buy. After you buy then you have a 50-50 chance, at best, of picking the high. You also have to pay the commission on the sell. 50% times 50% is 25%.So you have, at best a 25% chance of buying low and selling high. You are churning your account which makes money for the broker whether you make money or not. If, instead, you buy and hold a dividend paying security then the going price is irrelevant. You paid for the security once and do not have to pay for it again. Meanwhile the dividends roll in forever. 'Buy low, sell high' is a fools game. Warren Buffet does not do it, he buys and holds.

  • What about being active investor? Buying and selling stock. – kinkajou Oct 17 '15 at 5:26
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    I'm a long-term investor. I don't care about dividend payouts. I just want my investments to be worth more when I finally do sell them, many years in the future. – ChrisInEdmonton Oct 18 '15 at 12:02
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    Both longterm value, and longterm dividends, are relevant for longterm investing, depending on the details of how that company is being managed --how much profit is paid out as dividends versus how much is reinvested to grow the company. Day-to-day motion is just noise on that timescale, and even longer swings may not matter depending on how much you trust that the company's actual value remains solid and the price will recover. – keshlam Oct 18 '15 at 17:17
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    Buying and holding a dividend paying security is the best long term strategy if you reinvest the dividend. REITs, by law (in the US), must pay out their profit in dividends. Just use some method to reinvest the dividends without incurring a commission. – Jack Swayze Sr Oct 18 '15 at 18:13
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    The -1 people think that they can do better by active trading (speculation). In short, their arrogance is paying the salary (comission) of their broker while most of the time they lose money on their trades. That is not how (such people as) Warren Buffet became rich. Even Jim Cramer now makes his living as a television host instead of a hedge fund manager. – Jack Swayze Sr May 14 '16 at 22:38

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