An MA is a smoothed version of a trend and the average itself is an area of support and resistance.In a rising market , price reactions are often reversed as they find support in the area of the MA, similarly , a rally in a declinating market often meets resistance at an MA and turns down. The more times an MA has been touched,that is , when it acts as a support or resistance area.the greater the signficance when it is v iolated.
A carefully chosen MA sghould reflect the underlying trend, its violation therefore warns that a change in trend may already have taken place. If the MA is flat or has already changed direction, its violation is fairly conclusive proof that the previous trend has reversed.
If the violating occurs while the MA is still procdding sharply in the direction of the prevailing trend, this should be treated as a preliminary warning that a trend reversal has taken place. Confirmation should await a flattening in the angle of ascent or descent, a change in direction in the MA itself, or alternative technical sources. The crossover of a moving average with a sharp angle of ascent or descent is akin to the vilation of a trendline with a sharp angle.
signal. For instance, the vi olation of a 18-month MA is a substantially more important than the crossover of a 30-day MA.
Reversal in the direction if an MA are ususlly more reliable than an MA crossover. In instances in which a change in directions occurs close to a Generally spaking, thelonger the time span covered by an MA, the greater the significance ofa crossover market turning point, a very powerful and reliable signal is given.
In a nut-shell, think of an average as a type of moving trendline that obtains its significance from its length(time span) , the numbur of times it has been touched or approached, and its angle of ascent or descent.
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