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The Power of Moving Averages in Smart, Simple Trading

 

One of the most powerful and beginner-friendly tools in trading is the moving average. In DO IT YOURSELF INVESTING FOR BUSY PEOPLE:TRADE ANYTIME, Ritchey Marbury highlights moving averages repeatedly because they form the backbone of his long-term trading success. They are simple, visual, and surprisingly effective. Moving averages help traders understand both short-term and long-term trends without getting lost in complex analysis.

This blog breaks down how moving averages work and why they are essential for anyone who wants to trade independently, efficiently, and with confidence.

What Moving Averages Really Tell You

At its core, a moving average is a trend indicator. It smooths out daily price fluctuations and shows whether a stock is generally moving upward or downward over a specific period. Traders use moving averages because prices can be noisy—sudden spikes, dips, and intraday volatility can fool beginners. A moving average filters out that noise and reveals the true direction.

There are two main types of moving averages Marbury focuses on:

  • Simple Moving Average (SMA)
  • Exponential Moving Average (EMA)

Both are useful, but each serves a slightly different purpose.

Simple Moving Average (SMA): The Foundation of Trend Reading

The Simple Moving Average is calculated by taking the closing prices of a stock over a set number of days, adding them together, and dividing by that number. It gives equal weight to each day. Because of this, the SMA changes slowly and provides a steady reading of a stock’s general direction.

Marbury frequently looks at four key SMAs:

  • 20-day
  • 50-day
  • 100-day
  • 200-day

The relationship between these averages forms a blueprint of the stock’s health. While Marbury doesn’t obsess over names or jargon, the concept remains the same: it shows strength, momentum, and buyer interest.

On the other hand, when the shorter averages are below the longer ones, the trend may be weakening or reversing. Beginners often find this simple observation far more reliable than relying on tips, predictions, or gut feelings.

Exponential Moving Average (EMA): A Faster, More Sensitive Indicator

The Exponential Moving Average is similar to the SMA, but it gives more weight to recent prices. This means it reacts faster when the stock starts trending in a new direction.

The EMA is particularly useful during volatile markets or when traders want early signals of momentum changes. For example:

  • When a stock shifts from sideway movement into an uptrend, the EMA will often turn upward before the SMA.
  • When a trend is weakening, the EMA may flatten or turn downward earlier than the SMA.

This “quick reaction” feature makes the EMA a valuable companion to the slower, steadier SMA.

Marbury combines both indicators to get a more complete picture. The SMA tells him the overall direction; the EMA tells him how quickly momentum is shifting.

How Moving Averages Support Better Buy and Sell Decisions

Moving averages aren’t just lines on a chart—they are strategic tools. Marbury uses them in several important ways:

1. Avoiding Overpriced Situations

If the price is far above the moving averages—especially above the upper part of a volatility channel like the Keltner Channel—it may be better to wait for the price to pull back. Buying too high is a common beginner mistake moving averages help prevent.

2. Recognizing Weakness

When a stock falls below key moving averages, especially the 50-day or 100-day SMA, it can signal that buyers are losing control. This helps traders avoid holding onto losing positions too long.

3. Confirming Trends

Multiple timeframes working together give confirmation. A single indicator isn’t always enough, but when several moving averages align, it strengthens the validity of the trend.

Why Moving Averages Are Perfect for Busy Traders

Marbury emphasizes simplicity for a reason. Busy professionals don’t have hours to spend analyzing complex patterns or monitoring every tick. Moving averages provide:

  • Quick visual clarity
  • Reliable long-term signals
  • Easy integration with other indicators like RSI, MACD, and OBV
  • Structure that prevents emotional decisions

You don’t need to memorize formulas or manage twelve indicators at once. With moving averages, most of the heavy lifting is done for you.

Combining Moving Averages With Market Awareness

While moving averages help identify trends, Marbury pairs them with awareness of economic conditions. Reports such as CPI, PPI, ADP, and Federal Reserve decisions can influence the market quickly. Moving averages help traders stay grounded amid this noise, providing stability and perspective when markets react sharply.

Conclusion: A Simple Tool That Builds Strong Traders

Moving averages are more than beginner tools—they are professional tools expressed simply. Marbury used them throughout his 60-year trading career because they work. They guide traders toward strong trends, alert them to weakness, and simplify decisions.

Most importantly, they empower busy traders to trade confidently without feeling overwhelmed.


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