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Moving Averages 101: Incredible Signals That Will Make You Money in the Stock Market

by Steve Burns and Holly Burns (2015)

Quick summary -- an in-depth PhD-level extended summary (10-30 pages) for this book is coming soon.

Moving Averages 101: Incredible Signals That Will Make You Money in the Stock Market

Executive Summary

Steve and Holly Burns present a focused, practical guide to using moving averages as the primary tool for trend identification and trading signals. The book covers six key moving averages across daily timeframes and explains their significance for different types of traders, from momentum traders using the 5-day EMA to long-term investors watching the 200-day SMA.

Core Thesis

Moving averages are among the simplest yet most powerful technical indicators available. They provide objective, quantifiable trend identification that removes subjectivity from trading decisions. By understanding the significance of each key moving average level, traders can identify support, resistance, trend direction, and optimal entry/exit points.

Key Moving Average Framework

  1. 5-Day EMA: Strong momentum indicator, support in the strongest uptrends, used as trailing stop
  2. 10-Day EMA: Keeps you on the right side of the major market trend, first warning signal
  3. 21-Day EMA: Intermediate-term support, inevitable reversion to mean after extended moves
  4. 50-Day SMA: The defense line for strong uptrends, classic "buy the dip" level
  5. 100-Day SMA: Deeper pullback support between 50 and 200 day levels
  6. 200-Day SMA: The bull/bear dividing line - bulls buy above, bears sell below

Key Concepts

  1. Moving Average Crossover Systems: Using crosses between different MAs as trend change signals
  2. Combining MAs with Other Indicators: Using MAs alongside MACD, RSI, and support/resistance
  3. Confluence of Timeframes: When multiple MA levels align across timeframes for higher probability
  4. Trend vs. Noise: Higher timeframes show trends, lower timeframes show noise

Practical Applications

  • Use the 200-day SMA as the primary bull/bear filter
  • Buy dips to the 50-day SMA in confirmed uptrends
  • Use the 5-day EMA as a trailing stop in strongly trending markets
  • Wait for MA confluence across multiple timeframes for higher probability entries

Critical Assessment

The book excels as a focused, practical reference on moving averages. It is deliberately simple, which makes it accessible but also limiting for experienced technicians. The student testimonials suggest strong real-world applicability of the concepts.

Key Quotes

  • "I always check my charts and the moving averages prior to taking a position. Is the price above or below the moving average? That works better than any tool I have." - Marty Schwartz
  • "Trend lines are subjective, moving averages are quantifiable facts."

Conclusion

"Moving Averages 101" is a valuable reference for any trader who wants to understand how institutional money interacts with key moving average levels. Its simplicity is its strength, providing clear, actionable rules for trend identification and trade management.