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Moving average spreads are plotted as any momentum oscillator. Direction, extreme values and divergence are looked for in the chart. If the spread is uptrending, the shorter term moving average must be greater than (above) the longer term moving average. The reverse is true for a downtrending spread. Trading signals are generated when the zero line is crossed, showing a moving average cross over. Thus, moving average spreads are good trend indicators. Extreme values are a little harder to measure in the moving average spreads as there are no pre-set boundaries. The Relative Strength Indicator and Stochastic Oscillator have maximum and minimum values (100 and 0) and levels at which the market is considered overbought/oversold (70% - 30% and 80%-20%, respectively). The MAS, much like the NCO, does not have either of these pre-determined parameters. It can take on any value, positive or negative, of any magnitude. Analysing historical data of past extreme values is necessary, and then these areas can be used for future reference. Divergence between MAS direction and security price direction gives early indication of trend change. One measure of trend change that is often used in technical analysis is the crossing of moving averages. Crossing of the moving averages which make up the spread necessarily makes the MAS reach zero. Thus, early warning or confirmation of a change in trend is possible using MAS. Comprehension Questions1. What do momentum oscillators measure?2. What are the three important indications in all momentum oscillators? 3. How do momentum oscillators show direction of price moves? 4. Which M. 0's produce false signals? 5. How can M. 0's indicate a reversal of the prior trend? 6. What are the areas of extreme value called? 7. When does divergence occur? 8. What is the formula of Moving Average Spreads? Exercises Ex. 1. Put questions to the underlined words. Ex. 2. Find verbals and state their syntactical function in the sentence. Ex. 3. Select sentences which are difficult to translate and make a syntactical analysis of them. Ex. 4. Analyse noun collocations according to the models given in the Reference Grammar. Ex. 5. Read and translate the text.
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