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 245

graph than if you had a graph of the stock's daily closing prices. By studying the moving average graph you may be able to notice certain repeating patterns or trends. Armed with this knowledge and continuing to follow the 50-day moving average graph, you may be able to catch the stock as it begins to repeat a pattern that it has displayed before. If you act on this information (for example, buy the stock as it is beginning to enter a rising pattern the same way it has done before), you would then be in an advantageous position if the pattern repeats itself. Another way many investors use the moving average graph is by comparing it to the stock's recent price movements. If the stock's price rises enough above the moving average it may be a signal that the stock is about to move even higher (a large volume must be traded to justify this signal. Sometimes stocks trading on thin volumes send a false signal). Conversely if its price drops enough below the moving average, it may signal bad times ahead for the stock. The 200-day moving average is the same as the 50-day moving average, except that it is the closing price averaged for the past 200 days. This produces an even smoother graph than the 50-day moving average graph and it is used for longer-term trend analysis. Just like price graphs, finding real trends and patterns in moving averages is tricky. But sometimes it is even tougher to recognize the initial signs of a pattern in order to take advantage of it.

Stage Analysis - This analysis, used by many technical analysts, refers to theoretical stages that many stocks go through. It has been observed that frequently stocks during the course of some fixed time period (which may vary depending on the stock) go through four stages of pricing activity. In stage one, a stock may be stagnant, moving up and down in price by relatively small amounts but generally staying around the same level. As the company begins to show signs of growth or potential growth, the stock may enter stage two and begin to rise in price. In stage three the stock will reach its

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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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