Chapter 6: Technical Analysis
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Day 32: Moving Averages — The Trend's GPS
50-day, 200-day — these lines tell you exactly where you stand
2 min read
📖 The Student's Progress Chart
Victor's exam scores over 4 months: 40, 80, 60, 90.
Simple average of last 4 months: (40+80+60+90) / 4 = 67.5
His teacher: "Improving trend — consistently going up despite the February dip."
A moving average does exactly this for stock prices — it calculates a rolling average over recent days, smoothing out the day-to-day noise to reveal the actual underlying trend.
You stop reacting to every single candle and start understanding the forest, not just the trees. 🌲
Victor's exam scores over 4 months: 40, 80, 60, 90.
Simple average of last 4 months: (40+80+60+90) / 4 = 67.5
His teacher: "Improving trend — consistently going up despite the February dip."
A moving average does exactly this for stock prices — it calculates a rolling average over recent days, smoothing out the day-to-day noise to reveal the actual underlying trend.
You stop reacting to every single candle and start understanding the forest, not just the trees. 🌲
Simple Moving Average (SMA)
SMA(N) = Sum of last N days' closing prices / N
20-day SMA = average of last 20 trading days' prices.
50-day SMA = average of last 50 days.
200-day SMA = average of last 200 days — the most watched line in all of global finance!
Every day, the oldest data point drops out and the newest day adds in — hence "moving" average.
20-day SMA = average of last 20 trading days' prices.
50-day SMA = average of last 50 days.
200-day SMA = average of last 200 days — the most watched line in all of global finance!
Every day, the oldest data point drops out and the newest day adds in — hence "moving" average.
Golden Cross & Death Cross
🌟 Golden Cross = Strong Buy Signal
50-day SMA crosses ABOVE 200-day SMA. Short-term momentum turning positive. Historically precedes significant bull runs. When this happens — institutions pay attention.
💀 Death Cross = Strong Warning
50-day SMA crosses BELOW 200-day SMA. Short-term momentum turning negative. Markets often enter prolonged downtrends after this signal. Worth taking seriously.
Using Moving Averages for Trend Identification
| Price Position | Meaning | Action |
|---|---|---|
| Price above 200 SMA | Long-term uptrend ✅ | Only buy trades — strong market |
| Price below 200 SMA | Long-term downtrend ⚠️ | Be very cautious with new buys |
| Price bounces off 50 SMA | Uptrend intact, pullback | Good buying opportunity! |
| Price breaks below 50 SMA | Short-term trend changing | Tighten stop losses, reassess |
🎉 The 200-Day SMA — NIFTY's Health Check!
Check NIFTY 50's daily chart on any trading platform. Draw the 200-day SMA. If NIFTY is above it → India is in a bull market. If below → be defensive. It's not perfect, but it's one of the most reliable simple rules in investing. Professional fund managers literally adjust asset allocation based on this one line. 📊
Check NIFTY 50's daily chart on any trading platform. Draw the 200-day SMA. If NIFTY is above it → India is in a bull market. If below → be defensive. It's not perfect, but it's one of the most reliable simple rules in investing. Professional fund managers literally adjust asset allocation based on this one line. 📊
🎯 Today's Takeaway:
MA = rolling average of recent prices — smooths out noise. Golden Cross (50 above 200) = bullish signal. Death Cross (50 below 200) = caution. Price above 200-day SMA = healthy market. Tomorrow: RSI — one number that tells you if a stock is exhausted or ready to run!
MA = rolling average of recent prices — smooths out noise. Golden Cross (50 above 200) = bullish signal. Death Cross (50 below 200) = caution. Price above 200-day SMA = healthy market. Tomorrow: RSI — one number that tells you if a stock is exhausted or ready to run!