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Sunday, February 17, 2013

Moving Averages as Triangles


It is a known fact that MAs act as areas of support and resistance
When price moves above all MAs, stock is on an uptrend (and vice-versa.)

BOOOORIIIING!!!

The excitement comes in when price is trapped inside two converging MAs.

When two different MAs are about to cross, they usually form a triangle.
Symmetrical, ascending or descending.
They are all the same to me.

At the opening of the triangle, price usually moves sideways.
Up and down. Up and down.
Testing support and resistance.

BUT!! As the trading days continue, that window gets smaller and smaller giving the price less room to move into.

And when the price can't breath anymore, what happens next?
Yes, a breakout or a breakdown.

Here are some examples:

BREAKOUTS
Image 1 Image 2
BREAKDOWNS

So what to do in this type of scenarios?
In my case, I only buy on breakouts. Just to be safe :D
But others use indicators like MAs, MACD and RSI to supplement their analysis.

So what's your take on these three stocks? Charts as of 02-15-13


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