How To Use Moving Averages To Buy And Sell A Share?

Investment

oi-Sunil

By Sunil Fernandes

Published: Monday, June 22, 2015, 9:43 [IST]

Moving averages have become extremely popular amongst investors as a technical tool to buy and sell shares. These are just averages that can be studied, but do not guarantee a bounce or trend reversal in shares.

When to use moving averages to buy and sell shares?

We can use a host of moving averages including 50 day, 100 day and 200 day moving averages. The averages are achieved by dividing the average closing price by the number of days you want to consider.

These moving averages are just meant to study the trend and do not in any way guarantee the price movement.

Let's say that the 200 days moving average for the Nifty was 8200. If the Nifty breaks the 200 day average many technical analysts believe that there could be further downside in the index, if the average is broken convincingly.

Others may want to see the same as a good technical support, from which the index could bounce back and there could be a trend reversal.

Technicals may not work in case of event based buying or selling. For example, if the Greece exits the Euro Zone or the US Federal Reserve sharply hikes interest rates in the US, it is quite possible that averages would assume little significance as event based risks defy technical analysis.

Neither technical nor fundamentals would work, if there is a serious event base risk.

Buying or selling shares based on moving averages may work best when the markets are more steady and less of event based risk. You may at times need to seek professional help if you do not understand technical to a great extent.

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