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Penny
Stock Moving Averages
Moving
average lines are lines that use the stocks closing price for a
period of time to determine a "trend" line. Moving averages
can be used to determine support and or resistance as well on a
stock chart. The most common moving average (MA) lines are 20, 50,
100, and 200. The 20 MA line for example draws a trend line that
uses the stocks closing price for the past 20 days, the 50 MA price
is the stocks trend line for teh past 50 days of closing prices.
When a stock price is ON TOP of its 20/50 MA lines, we consider
that trend line as a support line. Meaning the stock will likely
stay on top of those lines using them as support. SUPPORT is basically
a price that buyers are willing to pay for a stock if it falls.
Support = DEMAND for a stock. Most people like to buy stocks just
as they break above a MA line and hold that area of support and
ride that stock until it hits its next level of resistance.
When a stock is in a downtrend or the PPS is BELOW the 20 and 50
MA price line, we consider that as using the MA lines as RESISTANCE.
When the price is below the MA lines and it approaches for example
the 20 MA line we consider that line as a stock that has a lot of
SUPPLY there, many people try to SELL when the price goes up to
a MA line knowing that most of the time it will HIT that line and
DROP lower again. A simply supply and demand theory.
What will happen over time is one of two things...Either a stock
will finally fall to its BASING price and then consolidate or trade
sideways for a while and build up steam. A stock like GAXY (as long
as it is not diluted (s8) ) will eventually hit bottom and then
slowly build up stream and rally. The first rally might hit the
20 or 50 MA line and fall down again, a stock with good strength
will hit the MA lines a few times and then BREAK UP or break out.
When a stock breaks through and goes UP from its MA lines, the stock
has just started a uptrend. Now we look for the price to continue
the uptrend. Uptrend have period of moving UP and then small dips
down, usually hitting the MA price and staying on TOP of them. Remember
if the price falls BELOW the MA line, then the downtrend starts
and those lines are now RESISTANCE. But if it stays on top of the
MA lines and holds, they are support, the stock should eventually
go back up as buyers buy at support and the rally continues. 20
and 50 MA price trend lines are for mostly short term trading. Long
term traders like to use stocks with 100 and 200 MA lines, same
theory just longer period of time.
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