The moving average is a technical indicator that is reliable and easy to understand, at least as far as technical indicators go. See Chapter 11 for more info on moving averages.
In basic terms, a moving average is the average of the closing prices of a security over a certain period of time. Moving averages can be helpful when you’re looking to confirm a trend, so you can rely on them to boost your confidence in the trading decisions you make based on bullish-trending candlestick patterns.
If you haven’t yet made your way through my discussion of technical indicators in Chapter 11 or you need a refresher, the first rule of thumb with using moving averages as trend indicators is if a security’s price is above the moving average, an uptrend is in place. With that in mind, take a gander at my first example of combining moving averages with bullish-trending candlestick patterns.
Figure 14-5 is a chart of the stock for Yum! Brands (YUM). When you realize that Yum! Brands operates various fast food restaurants, including KFC, Taco Bell, and Pizza Hut, you can understand where it got its company’s name and stock symbol.
In Figure ...