Hello Trader,

Now that I?ve shared how to use moving averages to gain an edge and how to use shorter term moving averages to help you with entries I want to also reveal how moving averages help us read price action.

First, revealing trend momentum and direction. If price is in a strong trend it will be revealed thru it?s moving averages. If you have have a 10-day, 30-day, and 200-day moving average all in proper order with one another(meaning price is above the 200, with the 30 above the 200, and the 10 above the 30 and 200) then it price is an obviously trending up. However, if you see a lot of space between the moving averages and price is still riding high and not touching any of them then you can determine that price is in a very strong upwards trend. You can exploit this profitably by waiting for price to pullback into a buying pattern and then enter into a very strong trend. These plays are very profitable.

Then, there are times when moving averages go sideways or move ?flat?. There is no discernable direction in the moving averages which means price is usually ?basing? or consolidating gains after a strong move upwards. When moving averages perform this way it reveals there is a trading range. You can exploit trading ranges by using oscillators like the Relative Strength Indicator(or RSI) or using stochastics. You can also look for support or resistance in price behaviour and trade of these levels.

Now that you?ve been exposed to some of the ways you can use moving averages I want you to start looking at some charts of different stocks and study to the relation of price to it?s moving averages. You can go to Yahoo Finance or to www.stockcharts.com. Both are free and you?ll find a lot of information that will serve you as you get these newsletters.

Good Trading,

Billy W. www.stockoption.com

3828 West Davis Ste. 308-108 Conroe, TX 77304