What is the indicator of price extreme when using moving averages?

The convergence of two moving averages is a significant indicator of price extremes because it reflects a potential shift in the trend and market momentum. When two moving averages converge, it suggests that the short-term price movement is becoming increasingly similar to the longer-term price trend. This narrowing indicates that the market may be at a pivotal point, where a price reversal or continuation of the trend could occur.

Traders commonly use this information to assess periods of indecision or price consolidation, which can precede strong moves in either direction. Generally, when moving averages converge, it can signal a weakening trend, whereas a divergence often indicates a strengthening one.

This understanding is crucial in technical analysis because it helps traders make informed decisions based on market behavior rather than impulsive reactions. By focusing on price extremes identified through moving averages, traders can better position themselves for potential price movements.