One moving average by itself is a powerful indicator. But we can improve on this even further by using two moving averages. By now you will be use to the idea of selling a stock when the indicators show a potential reversal in price. Sometimes this is temporary and the stock will continue trending up again, at which point you will have learnt to buy it back. But how long do we do this for? This answer is for as long as the primary trend continues this direction.

Using two moving averages such as the 30 and 50 is ideal to answer this question. But lets firstly revise for how long trends go for. Prices rarely move in a straight line. Instead, they will typically move up or down in a zig zag. These small movements are short term trends and normally last less than a week. Short term trends are effected by market sentiment and rumour as much as what the company's performance is.

A medium term trend will normally last from a few weeks to a few months and is a true reflection of company performance. If the value of a company decreases, then the share price will trend down over a few months. A medium term trend will contain several short term trends. So how long are a few months in trading days? After we take out weekends it is close to around 50 or 60 days. So a second moving average around this time is useful in tracking medium term movements.

When a price moves up, the 30 day moving average will start to move before a 50 day moving average.

The price starts trending up and the 30 day moving average line rises more sharply than the 50 day moving average line.

So as medium term traders, we are interested in price movements that are strong enough to move the 30 day moving average line upwards. When we see it move up and crosses through the 50 day moving average, this is a confirmation that a significant price movement has began. We now continue to trade this stock until the end of the trend.

This takes us to the second part of moving averages. When does the trend end? If we are using a 30 day moving average crossing up through a 50 day moving average to confirm an uptrend, then the 30 day moving average crossing down through the 50 day moving average is a good confirmation of the end of the trend. We see this in the chart below.

The trend reverses and the 30 day moving average crosses down through the 50 day moving average. But what happens if you ignore that signal? When people start selling in times like this, especially when there is some negative news floating around at the same time, it can snowball. This is what has happened here. In the time frame seen here, this company lost half of its stock value. What we can also see is that most of this happened after the 30 day moving average crossed down through the 50 day moving average.