Simple Moving Averages

Paying attention to simple moving averages can often tell you when to buy or sell stocks. For example, the 200 day moving average for a broad market index like the S&P 500 tells you whether we are in a bull market or a bear. Generally, if the S&P daily price is above the 200 day average with a positive angle upward, it is safe to be in stocks.

You can sometimes make money if you notice the stock market is in a repeatable trading range. You could dial in a moving average like 13 days or another number to determine when to buy and sell. The danger here, however, is that the stock market might break out of its trading range at anytime, and it might go in the opposite direction from what you expected.

The best use of the moving averages occurs when we are in a bull market. If the trend is pointing upward, you can buy the dips in the price chart. Beware if the S&P 500 is below the 200 day average, though, because most stocks trade together, and you never know when a bear market will end or if it will get worse.