Comment on Indicators (Part 2)

Guru commented on 11 May 2018, 05:57 AM

Hi Karthik,

I have gone through simple moving average (SMA) lesson and Bollinger bands (BB) lesson that is present here.

Pasted below the excerpts from both the lessons and I’m bit confused on the position to take when the current market price (CMP)is above the moving average.

Because, BB lesson suggests ‘sell’ when the CMP is above average price with the expectation that it eventually comes down to its average price and SMA suggests ‘buy’ with the understanding that traders are optimistic and willing to buy above its average price.

I know it is ultimately to my conviction to take a position on the trade but wondering how to interpret these two conflicting messages from these two indicators which are based on moving averages. Can you please help clarifying it?

Excerpt from simple moving average lesson –

The moving average can be used to identify buying and selling opportunities with its own merit. When the stock price trades above its average price, it means the traders are willing to buy the stock at a price higher than its average price. This means the traders are optimistic about the stock price going higher. Therefore one should look at buying opportunities

Excerpt from Bollinger bands lesson –

If the current market price is around the upper Bollinger band range (I.e., when the stocks trades above its average price) , then it is considered expensive with respect to the average, hence one should look at shorting opportunities with an expectation that the price will scale back to its average price.

Kind Regards,
Guru

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