Wednesday, April 1, 2015

How to identify range market by Moving Average

As I already explained, a trend market would be confirmed when two moving averages
diverge from each other. In other word, when a market is in an uptrend the shorter moving
average tends to diverge quickly from the longer moving average and this makes the distance
between two moving averages looks wider. This phenomenon indicates that the momentum
of the price is rising.
Otherwise, when two moving averages are converging after they diverged once earlier
(Where we took the LONG trade), the price tends to pull back and this means the momentum
of the market is slowing, so the LONG trade is about to be invalid and we must exit the
market.
Furthermore, two moving averages are on their way to cross over again but this time shorter
moving average cross the longer moving average in opposite direction (Downward). The
downward cross over of two moving averages gives us very valuable information in which
the momentum has slowed into levels that the price can not rely on it anymore. A very weak
momentum would means that the market is going to be lazy (Consolidation) so we must
avoid this situation and wait till a new clear signal tell us what to do next



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