How can a chart tell you if we’re in a bull or a bear market. The secret is understanding moving averages, says Dominic Frisby in British finance magazine MoneyWeek. Dominic says moving averages “are a gloriously simple trading tool that can help clarify where you are in the grand scheme of things.”

If you’re looking at a weekly chart, the 30-week moving average (30 wma) will show the average weekly price for the last 30 weeks; the 50 week-moving average will show the average weekly price for the last 50 weeks; and so on.

On a daily chart, people will often look at the 20-, 50- and 200-day moving averages (20dma, 50dma, 200dma). Longer-term traders concentrate on the weekly charts and shorter-term traders will look at the daily, hourly and, in the some cases, even the minute charts. But if you want to be a truly idle investor, look at the weekly charts. In a bull market they will be sloping up. In a bear market they will be sloping down.

Below is a chart of gold since 2001. Most chartists tend to use rounder numbers and the 30 and 50-week averages will work just as well here. But, because I am stubborn old goat who always has to be different, I am using 34- and 52-week moving averages. (I use 34 as it is a Fibonacci number – that’s a story for another day – and 52 because there are 52 weeks in a year). You will notice that the 34 wma is above the 52 wma and the actual price is above the 34 wma. That is the action of a bull market.

You will also notice that the price tends to return to the 52wma; the 34- and 52wmas then come closer together, and then the price breaks out again. These mark good entry points. When the price is too far above its weekly moving average (30-40%), it’s usually a sign that it has got ahead of itself and it’s time to take some profits. You will also notice that the 34 wma has never crossed down through the 52 wma during this period.

Source: How to Make Money from Markets You Know Nothing About