How Moving Averages Help You to Define the Trend

One way to think of a moving average is that it’s an automated trend line.

By Elliott Wave International

The "moving average" is a technical indicator of market strength which has stood the test of time.
More than 30 years ago, Elliott Wave International President Robert Prechter described this indicator in his essay, "What a Trader Really Needs to be Successful." What he said then remains true today:

... a simple 10-day moving average of the daily advance-decline net, probably the first indicator a stock market technician learns, can be used as a trading tool, if objectively defined rules are created for its use.

So, what is a moving average?
Elliott Wave International's Jeffrey Kennedy, a more than 25-year veteran of technical analysis, provides an answer:

A moving average is simply the average value of data over a specified time period, and it is used to figure out whether the price of a stock or commodity is trending up or down.

One way to think of a moving average is that it's an automated trend line.

Kennedy offers examples and insights about moving averages in the instructive guide, "How You Can Find High-Probability Trading Opportunities Using Moving Averages."
Here's an introductory chart from the guide, along with Kennedy's comments:

The chart plots three moving averages on a [past] daily chart for Corn. The red line represents a 10-period weighted moving average, the green line represents a 10-period exponential moving average, and the blue line is a 10-period simple moving average. … The exponential moving average and weighted moving average put more value on the front end, which means that while a 10-period simple moving average assigns the same weight to each period, exponential and weighted moving averages put more weight on the most recent data.

I rely mostly on the simple moving average, because simple things usually work best.

In this guide, Kennedy shows more elaborate charts as he goes into detail about the "dual moving average crossover system" and the "moving average price channel system." Moreover, he informs you how to combine the two.
Yet, also be aware that Kennedy discusses the pitfalls of relying on one "magic" moving average setting.
In the free guide, How You Can Find High-Probability Trading Opportunities Using Moving Averages, you'll also learn how to avoid being "whipsawed" by false signals.
Get instant access to this popular free trading guide now.

This article was syndicated by Elliott Wave International and was originally published under the headline How Moving Averages Help You to Define the Trend. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

India's Nifty 50: Does the Bad Jobs Outlook Spell Trouble for Stocks?

India's "employment outlook" just reached its lowest level in 14 years.

By Elliott Wave International

There are a lot of mouths to feed in India -- north of 1.3 billion.
That means a lot of jobs are required to put food on the table for a lot of people. But there's a problem: the jobs picture in the world's second most populous nation isn't pretty.
As far back as a year ago, the Washington Post said (Feb. 1, 2019):
**India's jobs crisis is worse than people thought ...
At the time, a private survey had shown that the number of people working had contracted by 11 million in 2018.
Here in February 2020, the jobs outlook remains bleak.
So, what should investors make of this?
Well, a chart and commentary from Elliott Wave International's February 2020 Global Market Perspective provides insight:

**ManpowerGroup India reported the results of its Q1 2020 Employment Outlook Survey, which showed that only 10% of managers planned to increase staff -- the lowest level in the survey's 14-year history.
**For the past few years we have interpreted apparent troughs in the survey results as bullish for stocks, as prior troughs were in Q1 2009 and Q4 2012. So far, that interpretation has been correct.
"Bullish for stocks"? How's it possible for bad employment data to be bullish for stocks?
Helping you understand seeming paradoxes like these is a unique feature of Elliott wave analysis. It's not that bad news is bullish for stocks. It's more nuanced than that. Our research shows that bad news often coincides with the end of a downtrend in a market's Elliott wave pattern.
That's why EWI's Global Market Perspective rightfully interpreted two prior employment troughs as bullish signals for Indian stocks -- you can see those moments marked on the chart with the first two red arrows.
Unfortunately for them, most investors continue to make a big mistake when they invest with the news, bullish or bearish. As EWI President Robert Prechter stated in a classic Elliott Wave Theorist:
**One of the most important things to understand about the stock market is its relationship to news. Aside from emotional reactions lasting just minutes, news does not cause the market to move in any meaningful sense.
Get important insights into what really drives markets from Robert Prechter in a free 12-minute video, "Learn What REALLY Moves the Markets," a presentation that Robert Prechter made to The International Federation of Technical Analysts.