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This is one of the most primitive approach in case of Technical Analysis. This is still quite a effective approach when you are taking positions for swing trading.
The Moving Average would signify the strength or weakness of price movement over a period of time.
The easiest Moving Average which we will discuss today is "Simple Moving Average".
Depending on how many days of Moving Average you are looking for, it would signify the trend on short term, medium term or long term basis. Shorter the term, the trend will signify short term trend, and longer the term, it will signify the long term trend.
The normal practice is 20 DMA for short term trend.
50 DMA for medium term trend
200 DMA for long term trend
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Now let us understand how is it calculated.
20 DMA means the average of 20 days price movement
Every day, this will change. The last day's price is removed and the new days price is added.
For example, the last 20 days Index price (End of Day Closing) is say:
20 DMA = (5600+5630+5700+5730+5815+5774+5730+5650+5630+5690+5730+5815+5774+5730+5650+5630+5690+5630+5550+5570)/20
When the market starts trading above this price, then it signifies BULLISHNESS and when it trades below this price, it signifies BEARISHNESS.
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