What Is a 7-Day Moving Average How It Helps Traders
Introduction
Moving average is commonly used in capital markets as a trading strategy. According to the investor's choice, these averages can be short term, intermediate, or long-term.
Short-term moving averages take you closer to the current price trends. At the same time, the long-term moving average indicates the movement in price and has a more lag effect than short-term moving averages.
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The 7-day moving average is also a short-term MA. Do you know what a 7-day moving average is and how you can use it during trading sessions? Hang on to find the answer to these questions.
What is the 7-day moving average?
A 7-day moving average is a short-term trend indicator. To calculate the 7-day moving average, you are only required to add the last 7 trading days' closing price of the stock and then divide it by 7. It will give you the 7-day moving average of the stock.
Place the average on the price graph. You will get the trend line that shows the movement of average closing prices of the stock over a week.
How to use a 7-day moving average to make trading strategies?
The 7-day MA is an effective indicator that is used as a vital resource to formulate various trading strategies, such as follows:
7-day MA is a short-term moving average, meaning it can be used to predict price changes more accurately. This indicator informs traders when there is an opportunity to enter a trade or make exits.
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Set support and resistance levels
The trend line that you obtain by 7-day MA can be used as a support and resistance level. This can be leveraged to make decisions on when to enter or exit a trade.
A popular strategy in trading is that the 7-day moving average is often used as a price level. If the price moves above this line, traders place buy orders and sell orders when it moves below the line.
Key takeaways
Moving averages help traders to identify the market movement and make decisions based on those trends. If the short-term moving average exceeds the long-term, traders will buy the stock due to upward price trends.
When the long-term moving average exceeds the short-term, they tend to sell the stock, as it is an indication of a downward price trend. This is how you can use the 7-day MA to make strategies and trading decisions to earn more profits and prevent losses.