I was listening to the speaker in a seminar 10 years ago and wondered, what is 20-period moving average. So, I searched more online, and here is what I found.
20-period Moving average(MA) is a trading indicator you can use for divergence trading. You can use it when the price is above 200 MA and below 20 MA. This indicator can trigger a buy signal.
20 period moving is popular among day traders because it is not too short and not too long. The indicator closely follows the price of the stock.
The frequent use of this indicator is buying or selling the stock when the price crosses above or below the 20 periods moving average.
Have you heard that 20MA is helpful in short-term trading? If not, then you need to continue reading. Most traders buy when the price is above MA20 and sell below it.
However, we will not copy other traders, but instead, we will talk about divergence trading later on. Also, this advance strategy has an edge because traders do not usually use it.
The 200-period MA has always been successfully used by traders to filter uptrend or downtrend stocks. Also, If more stocks are above this indicator, it means the market is healthy.
Furthermore, here at Johndeoresearch.com, we only recommend buying stocks above 200 MA regardless if you’re using shorter or long-term trading.
Data has shown that shorting stocks is not profitable in the long run at least as what we have known.
Divergence of 20 MA and 200 MA
- Occurs when an indicator and the price of an asset are heading in opposite directions. (source)
- One technical indicator signals an uptrend while the other shows a downtrend.
Well, we can use divergence to our advantage. Also, traders use this signal in mean reversion strategies.
We buy when the price of the stock has crossed below the 20-period moving average and has stayed above the 200-period MA.
Divergence in the two indicators has created the buy signal. The short-term dip within the uptrend is the right spot/level to acquire the stock.
Try to backtest with Amibroker the University of stocks to see the performance of this method. Let me know what you’ll find.
If you invest the time in backtesting this strategy, you’ll see that it is profitable.
You can experiment with different exit strategies by using Amibroker. It all depends upon your preference.
If you’re day trading, you’ve got to exit before or at the close.
Well, I hope you learned something today.
Can you suggest more strategies about the 20-period Moving Average? Let me know.
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