Investing for Beginners - One Trading Strategy

Investing for Dummies - Trading Moving Averages

As we have said before - stock charts for beginners - it is important if you are just starting out stock trading to understand the basics of stock charts. Why is it important ? Because professional traders use charts and if you don't understand them you will be at a disadvantage.

One of the basic concepts involved in stock charting is the 'moving average'. This is the average of a stock price over a given period of time - often 50, 10 or 200 days. Any financial site such as Yahoo will show you the moving averages, there's no need to work them out for yourself.

The aim as can be seen from this video from informedtrades is to buy a stock when it moves above a given moving average and to stick with it until it drops back down below the moving average again. This can be quite profitable if the stock is in an uptrend.

Another strategy is to track two moving averages such as the 50 and the 200 day - and to buy the stock when the shorter time frame average crosses over the longer time frame average while they are moving up. Some people refer to this event as a 'golden cross'.

If you are new to stock trading then these concepts may seem fairly alien, but a look at the video will show what is meant.

Moving averages are very basic indicators in stock charting but very widely followed by professional traders. Many traders for example will not buy a stock if its stock price is below its 200 day moving average, but once it crosses back over again then that could be a good time to start buying.

Swing traders also do not like buying a stock if its 5 day moving average is pointing down, so that's worth checking out too before wasting your cash on a risky gamble.

Apart from moving averages, another basic indicators that many stock traders use is that of support and resistance - see here basic stock trading strategies