Moving Averages Target Levels

Moving Averages Become Target Levels

The downtrend in MPS was finally ended with the confirmation of the Bullish Harami in early August. What becomes a logical upside target? Obviously, the 50-day moving average! As can be seen at that level, the Evening Star signal illustrated that the sellers had stopped the uptrend right on the 50-day moving average in the early part of September. The first attempt failed. The second attempt was confirmed with a strong bullish candle on the 1st of October. What is the next target? The 200-day moving average!

The more often a price fails at a particular moving average, the more confident the candlestick investor should be for finding the “sell” signals at that level. As illustrated in the Kemet Corp. chart, it had become obvious during March and April that every time this price approached the 50-day moving aver­age, candlestick sell signals would start to appear. Take advantage of the obvi­ous, especially when the candlestick sell signals confirm.

Fig. 3-10, The Kemet Coip. chart reveals what price reaction occur as it nears the 50-day moving average. Observing the historical tendency of a buy price move adds additional information to the chart analysis.

Observe the obvious! Simple observations are easily made when using candle­stick charts. Prices move in patterns. Resistance at a declining moving average is an important pattern to add when making your investment decisions. If you are able to clearly observe what happens at those levels, assume everybody else can also. The advantage for the candlestick investor is the candlestick “sell” signals provide immediate confirmation for what is happening in the trend as it is occurring. This allows early entry and exit strategies into the trading deci­sions.

When the same indicators are appearing as they have been a few times before, it becomes logical that the results have a likely probability of resem­bling the past results. Visual analysis can be done in a matter of seconds. Once you have trained your eye to recognize what a trend has been doing at specific points, making an analysis of what should be the next future move becomes that much easier.

Keep in mind, the candlestick signals are the foremost consideration. Adding stochastics and moving averages to the analysis enhances the probabilities of being in a high probability trade.

Fig. 3-11, The Deluxe Corp. chart provides a very simple scenario. Selling, coming in after a Spinning Top, right near the 50-day moving average. This would imply that that moving average was the resistance area once again. On the other hand, witnessing additional strength would imply that the downtrend had finally been broken and the 200-day moving average could possibly be the next target.