Long term moving averages are popular tools for judging current market conditions for stocks and their underlying sector. 50 and 200 day moving averages are most popular. Once a market is deemed safe to enter, short-term moving averages offer specific points of entry in addition to possible support and resistance as well.

Bullish traders looking to enter long positions confirm both the 50 and 200 DMA are rising. Conservative buyers will wait for 50 DMA to be above 200 DMA to exhibit strength. Aggressive traders may enter even when 50 DMA is below 200 DMA providing both are rising and prices rest above 50 DMA.

The five day, ten day and twenty day periods are three of the most widely-used short-term moving average indicators. Five day lengths mark one trading week's behavior. Ten and twenty day averages denote two week behavior and a full trading month's action respectively. When combined, these averages offer strong clues of where to enter and exit new trades. (Note that Bollinger Bands, a popular technical indicator, use an 18-day moving average as a base component which closely mimics the 20 DMA).

(hourly chart of RMBS)

Here we can see where 5, 10 and 20-day moving averages converge near $56 to offer several buy signals. Each point had two or more short-term averages join while rising.

The most bullish signals occur when all three moving averages converge as each is rising sharply. This indicates a strong move to the upside is likely.

Once the move was underway, DMA convergence at $92 and $98 offered two more entries as prices paused before the rally resumed.

(Hourly chart of YHOO)

This chart of Yahoo shows several buy and sell signals as two or more short-term moving averages converge. Averages converge while rising to indicate buying opportunities.

Convergence of two or more averages as they decline warn us to protect open positions or take profits.

These are powerful tools when used in conjunction with other technical indicators for safe entry and exit of any markets. Checking the overall strength or weakness in a stock's underlying sector or index is an important step for buying when the market is strong and selling or standing aside as weakness emerges.

The biotech sector showed several possible entries in early June, the strongest being near June 16th as all three DMA's met while turning up. Examining charts of stocks within this sector should result in high-probability trade opportunities.

The study and use of short-term moving averages is a critical segment of technical trading. Careful and patient entry at points of convergence while indicators rise is an important step for increasing profitable trades.