Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 244

every time it rises 20% or more could help an investor lock in profits at higher prices.

As you can imagine, the art of finding patterns and trends in a chart is like finding the proverbial needle in a haystack. The professional with a good eye for detail may be able to spot the subtlest patterns in a chart. Others rely on computers to do the job. Whatever the method and no matter how reliable a trend may seem, there can never be a full certainty that a stock will follow the same trend in the future. Only a strong possibility. But that is good enough for those who trade based on technical analysis.

Moving Averages - Forecasting a stock's possible direction using its price chart is okay. But if you wanted to get more scientific (or statistical) about your forecasts, you would look at a stock's recent price fluctuations versus its moving average. The moving average of a stock is the average price of that stock in the past over a certain number of fixed intervals. Using moving averages, investors can establish a pattern for a stock during a certain time period. Then if the stock starts to deviate from this pattern it may signal the investor to take action. (More on that later.)

The intervals that we talked about are arbitrary but the popular moving averages used by many investors are the 50-day and 200-day moving averages. The 50-day moving average is used for short-term trading while the 200-day moving average is more effective for longterm trading. The 50-day moving average is calculated by summing the closing prices of a stock for a given day and the past 49 days and dividing it by 50. The next day, you throw away the closing price from 50 days ago and replace it with that day's closing price. If you represent each average by a dot on the chart day by day and connect them over a period of time, such as 2 years, you end up with a much smoother

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Table of Contents
Copyright and Disclaimer
Book Chapters
Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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