How to Use the 200 and 50 Moving Average to Gage Market Internals

Technical Analysis - How to Use the 200 and 50 Moving Average to Gage Market Internals By [http://ezinearticles.com/?expert=Michael_Glass]Michael Glass Using Market Internals Long before we had any type of software that could significantly impact our trading decisions, multitudes of investors depended on reading market internals to successfully plan their trades for a day, a week and even for a quarter. Today, we have far more tools at our disposal but that doesn't mean we shouldn't adhere to the same theories of using stock market internals to our benefit. While in days past charting by use of a point and figure graph was the popular option, it's more important what these graphs showed than what they were. Point and chart graphs were specifically designed to allow us to identify breakouts, resistance levels, support levels and to help determine which direction a security price was heading. These market internal based charts provided the widely used indicators of 'percentage over 50' and 'percentage over 200' indicators that many traders still use today to make more informed decisions about their positions and their trades. Percentage over 50 Indicators First we need to identify what a percentage over 50 indicator is - simply put this shows an early indication of a new short term trend by reflecting a change in the moving average (over 50 days) of a security. While a percentage over 50 indicator might not be appropriate the best indicator of a single stocks breaking a resistance point, if a large number of issues are moving over upwards or downwards through their 50 day moving averages, it could be an early indicator of the entire market moving in a specific direction. If a large percentage of stocks are moving over their moving average during this time it may reflect an early indication of a bull market on the horizon. If a large percentage are moving below their moving averages it may conversely be an indicator of a bar market. Using this indicator to determine your trades helps you take advantage of trends that you might not have identified otherwise. If you are a trader who favors a specific industry - computers, oil, etc. - identifying these trends early should also help you identify securities within that industry who are leading the market and this may give you a slight edge in placing your trades. Percent over 200 Indicators A two hundred day moving average is a slower moving indicator - but can be more important in the terms of trading for longer terms. These charts tend to easily identify issues that become over bought or even oversold and a reversal may signal a rapid change in the overall market. If you're using the 200 day moving average it is often helpful to compare it to the 50 day moving average which can help you identify any possible trends that might be reversed. While individual positions may be a good indicator that something is not working well in a specific industry you can utilize the 50 and 200 day moving averages to easily identify up and down market trends. Percentage Indexes are a stage of signals that may signal a trend in the market to move to a bull or bear position and can help you set an appropriate trading strategy. There are six accepted signal stages and strategies for each stage. The 'bullish percentage index' is always one of these six stages: The bullish percent index is always in one (and only one) of six stages. These six stages signal the mode of the market (bullish or bearish), and for each mode there is an appropriate strategy. Here is a list of the six stages and what they mean: Bull Confirmed is just as it sounds - This signal indicates to all traders that there long positions are typically safe and the market is trading in a solid bull pattern. The most bullish signal the index reflects, gives traders a green light to take on multiple long positions with confidence. Sale of positions can safely wait for higher prices. Bear Confirmed is the least bullish signal and confirms that the overall market is in a down trend and this is a good time to consider short positions and covering outstanding positions to protect their value. Bull Correction only occurs after the bull confirmed stage and typically offers a slight correction but may also should be carefully monitored for signals that it is heading into a bear confirmed stage. Trades should be carefully monitored using market tools. Bear Corrections occur when the bear confirmed stage and typically indicates side-wards movement and encourages the trader to use their short positions with an extreme amount of caution and monitor trades carefully. Bull Alerts indicate issues that might be over bought or over sold and it can be safe to assume that readings below thirty percent are oversold and readings above seventy percent are overbought and trades should be handled accordingly. Bull alerts can be a signal to take a longer term position but with an eye to caution. Bear Alerts use the same figures as above in opposite directions. Bear alerts typically indicate that the market (or a particular issue) is overbought and may be ready for selling. Short positions should be carefully considered and positions that show profits of upwards of fifteen percent are probably ready to be sold since the overall market trend may be reflecting a new trend. In Conclusion As a responsible trader (whether online or otherwise) you need to understand when it's time to use leverage and how to be successful at your trading. Watching institutional traders and determining what their actions are can help you make a decision on what issues you want to either invest in or sell. Following a stocks tick price, whether up tick or down tick, means that you have the ability to make a more informed decision, set your expectations and allow you some small leverage in your trading. Ticks of plus or minus five hundred typically indicate that there is little institutional activity and ticks of plus or minus a thousand will indicate there is a great deal of activity. This can help you gauge what your response might be especially if monitored over several days of trading. Using market internal signals is a great way to leverage your power as an investor whether your goals are short or long term trading. Educate yourself on the various ways that these internal signals work and you'll be pleasantly rewarded. To learn more about technical analysis, check our blog @ [http://www.blog.accendotraders.com] To view video examples of effective Trade Plans on YouTube, check out [http://www.youtube.com/accendotraders] Tell Me and I'll Forget Show Me and I'll Remember Involve Me and I'll Understand Effective Trade Plans Delivered Daily from AccendoTraders.com Article Source: [http://EzineArticles.com/?Technical-Analysis---How-to-Use-the-200-and-50-Moving-Average-to-Gage-Market-Internals&id=1211332] Technical Analysis - How to Use the 200 and 50 Moving Average to Gage Market Internals