Stock Buy and Sell Signals 101

Finding stock buy and sell signals that are reasonably accurate most of the time is not that hard if you realize how to set up your indicators correctly. Optimizing moving averages is a simple, yet fairly accurate way to locate the direction a stock is going, and when a change may occur.

The one thing that investors must be aware of when using moving averages as a buy and sell indicator is the whipsaw effect. Basically this is the "noise" created by short term buying and selling. In other words, the moving averages may have small hills and valleys within a increasing or decreasing line. If traders were to trade whenever the moving averages gave you stock buy and sell signals, you would have some enormous) trading fees.

There are some simple steps to practice to make sure that your moving average setup gives you proper stock buy and sell signals without a lot of distraction. Most experienced traders use the 10 period and 30 period simple moving averages to calculate when a solid opportunity to enter and exit a stock presents itself.

Another strategy is to work with the 8 moving average and the 20 moving average which shows a slight advance notice. The shorter the moving average, the faster the line moves. Simplified. this means that the faster moving line is bullish when it is above the slower moving line, and bearish when it is below it. To go long on a trade, wait until the fast line drops down and crosses up through the slow line. In many cases, this is the signal to place a buy, as it is near the bottom of that period. Keep an eye on the fast line closely as it begins to turn and flatten out near the peak. As it curves downward and crosses through the slow line, this indicates your sell signal.

The moving average indicator is a good tool to use for stock buy and sell signals, but it is just that, a tool. Use it with a combination of additional technical indicators to determine if the stock reversal is going to happen, or if it is actually a false indication.