There’s no guaranteed way for traders to accurately determine the future path of a stock — there are way too many unknown factors on Wall Street at any given moment.
But that doesn’t mean we can’t catch a glimpse of where a stock should move based on some simple data analysis.
One of the tools traders learn to leverage early on is the 20-day simple moving average.
It’s one of the stock trading fundamentals that can help investors figure out if a trend is going to continue or reverse, becoming either bullish or bearish.
Stock Trading Fundamentals: How to Use the 20-Day MA
In case you haven’t noticed, we’re aggressive traders here at New Money Crew.
And any member of Weekly Blitz Alerts can attest that we strictly trade options, and we don’t like holding them for more than a week or in some cases… as little as 24 hours.
We pull up our daily charts and use stock trading fundamentals to help pinpoint when a company is going to move.
And by doing the majority of our trading with this mindset, we’ve discovered the winning formula behind a quick win: high volatility, high volume and a fast aggressive move in the right direction.
We’ve also found that the 20-day simple MA is a great way to find them.
Let’s take a look at some historical data from American Airlines Group Inc. (Nasdaq: AAL)…
You’ll notice how volatile AAL has was here. This isn’t surprising… airline stocks can be quick, aggressive movers, which we like.
When a stock gaps up, investors just want to run in and buy it a lot of the times — just look at the volume surge over the previous five or so trading days.
And just as soon as everyone piled in the stock, the chart went down for the next four days. You hate to see it.
But take a look at where the price pulled back to: The 20-day moving average.
We like to think of the 20-day moving average as a magnet — no matter how high the share price goes, it will get pulled back to its moving average.
That’s what traders call “reversion to the mean” — and why the veterans consider it a stock trading fundamental
Our job from there is to find the bounce. Check out the video below and I’ll show you a few historical examples of how to use the 20-day moving average to spot a bounce, and how we can use them to set up quick, aggressive trades.
