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wrote a post03/24/2022 20:41
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Quiz Club: Top 6 FAQs from MA Analysis Beginners

Finding the best way to combine different indicators can help you make better trading decisions. However, it's common to see new learners have trouble choosing the right indicators for a specific scenario, leading to confusion and misinterpretation of price trends. In the TA Challenge, the most frequently asked questions (FAQs) are:
ShockedAre MA indicators indispensable for my analysis?
Thinking FaceDoes cross-over always release buy signals?
HeyWhat are the limitations of MACD?
WhimperWhich time frame should I choose?
HammerHow to identify "NOT TO" buy or sell signals with EMA?
EmmWhat can DMI do in a downtrend?

@JM investor shared his insight regarding the above questions. Why don't we take a closer look at it?SmartSmart

1. Are MA indicators indispensable for my analysis?

"Moving average is a lagging indicator, and it cannot predict the price movement. For example, $Teladoc Health(TDOC.US)$ took only 1 month to plunge through all SMA 20, 40 and MA50, 100, and 200."
Quiz Club: Top 6 FAQs from MA Analysis Beginners
"The moving average is meaningless when a stock is in consolidation or for pump and dumps. It is only useful when there is an obvious trend. Instead, we should use the horizontal line as support and resistance to analyze the stock." $AT&T INC 5.000% DEP SHS REP 1/1000 PERP PFD SER A(T-A.US)$$AMC Entertainment(AMC.US)$
Quiz Club: Top 6 FAQs from MA Analysis Beginners
Quiz Club: Top 6 FAQs from MA Analysis Beginners
2. Does cross-over always release buy signals?

"Of course, nope. Using $Costco(COST.US)$ as an example, the moment SMA50 crosses below SMA150, and it signifies a mid-term down-trend. However, as moving average is a lagging indicator, the price is already very low, rebound later. Similarly, when SMA50 crosses above SMA150 here, it signified the mid-term trend is shifting to an up-trend. However, the price is already high."
Quiz Club: Top 6 FAQs from MA Analysis Beginners
3. What are the limitations of MACD?

"Similar to moving average, MACD is a lagging indicator. This means that the signals will occur when the trend has already existed. Other methods may be more useful to recognize an upcoming trend."
Quiz Club: Top 6 FAQs from MA Analysis Beginners
"Next, it works best when a market is trending rather than consolidating."
Quiz Club: Top 6 FAQs from MA Analysis Beginners
"Therefore, when MACD is in divergence mode, we will need to combine it with other indicators to confirm a trend reversal."
Quiz Club: Top 6 FAQs from MA Analysis Beginners
4. Which time frame should I choose?

"It depends on personal preference and style.
For short-term trading, EMA9, 12, and 26 are generally used. While SMA50, 100, 150, and 200 are used for long-term analysis. I will use EMA20 and 40 to identify a short-term entry to open a new position or swing trade.
In this chart, $Nasdaq Composite Index(.IXIC.US)$ tends to bounce at SMA100. Recently, MA150 has been a very strong support to it."
Quiz Club: Top 6 FAQs from MA Analysis Beginners
5. How to identify "NOT TO" buy or sell signals with EMA?

"While we need to know when to buy or sell, knowing when NOT TO buy or sell is equally important. I will first use $Nasdaq Composite Index(.IXIC.US)$ daily chart as an example to show how to apply these indicators."
Quiz Club: Top 6 FAQs from MA Analysis Beginners
"EMA serves as weak support for Nasdaq. When it moves further from EMA20, it tends to pull back to EMA20. Either bound on it or plunge through it. Thus, when the stock moves far away from EMA20, it signifies the stock could be pulled back anytime."

6. What can DMI do in a downtrend?

"DMI manages to warn us of a potential sell-off at the first arrow. Although it is still lagging from the previous high, it is still good enough to protect us from the further plunge!" $Microsoft(MSFT.US)$
Quiz Club: Top 6 FAQs from MA Analysis Beginners
Have you found all the answers?
I bet you do. Congrats on finishing the 1st learning journey of technical analysis. Please take a look at the following statements to refresh your memory.WowWow
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