Identifying the Trend -
Identify whether a stock is trending up, down, or not at all. Sometimes a stock price will move sideways for months or years. This does not benefit many long term investors if they are seeking long term growth. However, other stock traders who play upon the movement of a stock price within a “channel” can benefit if they keep close tabs on this method.

Moving averages is a good way to discover which way a stock is trending. For example, a 20, 50 and 200 day moving average can be plotted by selecting these options on most software. You do this by calculating the 20, 50 and 200 day moving averages and comparing the three results. For example, is the 50 day average higher than the 20 day average? Then the stock is trending downward. Is the 20 day moving average higher than the 50 day average? Then the stock is trending upward.

If you own shares in a stock that is trending down, this may be a very good time to sell them and move on. Or, some investors would increase their holding if and when a particular stock price moves lower. Of course, they eventually hope for an upward trend when they are ready to cash out.

Some investors never buy into stock that is on its way down; if they really want it, they will wait until there is a sustained upward trend.

If you notice that a stock is trending up, this may be the perfect time to jump on board and buy a some shares. The earlier you buy into an upward trending stock, the more money you will make when you sell it.

Moving Average Crossovers -
A crossover occurs when one of the moving average lines crosses over the other. For example, if the 50 day moving average line crosses downward over the 200 day moving average line, this may trigger a sell for some investors. And they may not buy the stock back again until the 50 day moving average line crosses upward over the 200 day moving average.

There can be many crossovers depending upon the time frame you are looking at as well as the number of days you select. Some traders get “whip lashed” into a buy-sell frenzy when they rely totally on crossovers or when they select moving averages that are not in “sync” with their investment horizon.

Often times several moving averages will “bounce off” or “touch” another moving average. But it’s important that the moving average actually crosses over before it triggers a buy or sell action.