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HOW TO USE MOVING AVERAGES – MOVING

AVERAGE TRADING 101
HOME INDICATORS HOW TO USE MOVING AVERAGES – MOVING AVERAGE TRADING 101
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How To Use Moving Averages – Moving Average Trading

101
 Rolf |  Rolf, tips, Trading Method, Trading Strategy, Trading Tool |  Indicators, Price Action, Technical
Analysis, Tradeciety Academy |  9
Read the article in German: Auf Deutsch
——————
Moving averages are without a doubt the most popular trading tools. Moving averages are great if you know
how to use them but most traders, however, make some fatal mistakes when it comes to trading with moving
averages. In this article, I show you what you need to know when it comes to choosing the type and the length
of the perfect moving average and the 3 ways how to use moving averages when making trading decisions.
Step 1: What is the best moving average? EMA or SMA?

At the beginning, all traders ask the same questions, whether they should use the EMA (exponential moving
average) or the SMA (simple/smoothed moving average). The di"erences between the two are usually subtle,
but the choice of the moving average can make a big impact on your trading. Here is what you need to know:
#1 The di!erences between EMA and SMA
There is really only one di"erence when it comes to EMA vs. SMA and it’s speed. The EMA moves much faster
and it changes its direction earlier than the SMA. The EMA gives more weight to the most recent price action
which means that when price changes direction, the EMA recognizes this sooner, while the SMA takes longer to
turn when price turns.
#2 Pros and cons – EMA vs SMA
There is no better or worse when it comes to EMA vs. SMA. The pros of the EMA are also its cons – let me
2 of 13 5/4/19 10:23 PM
vulnerable when it comes to giving wrong signals too early. For example, when price retraces lower during a
rally, the EMA will start turning down immediately and it can signal a change in the direction way too early. The
SMA moves much slower and it can keep you in trades longer when there are short-lived price movements
and erratic behavior. But, of course, this also means that the SMA gets you in trades later than the EMA.
#3 Resume
In the end, it comes down to what you feel comfortable with and what your trading style is (see next points)
EMA gives you more and earlier signals, but it also gives you more false and premature signals. The SMA
provides less and later signals, but also less wrong signals during volatile times.
In my trading (click here to read about my trading system), I use an SMA because it allows me to stay in
trades longer as a swing trader.
Step 2: What is the best period setting?

After choosing the type of your moving average, traders ask themselves which period setting is the right one
that gives them the best signals?!
There are two parts to this answer: first, you have to choose whether you are a swing or a day trader. And
secondly, you have to be clear about the purpose and why you are using moving averages in the first place.
Let’s go about this now:
#2 The self-ful"lling prophecy
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You have to stick to the most commonly used moving averages to get the best results. Moving averages
work when a lot of traders use and act on their signals. Thus, go with the crowd and only use the
popular moving averages.
#3 The best moving average periods for day-trading
When you are a short-term day trader, you need a moving average that is fast and reacts to price changes
immediately. That’s why it’s usually best for day-traders to stick with EMAs in the first place.
When it comes to the period and the length, there are usually 3 specific moving averages you should think
about using:
9 or 10 period: Very popular and extremely fast moving. Often used as a directional filter (more later)
21 period: Medium-term and the most accurate moving average. Good when it comes to riding trends
50 period: Long-term moving average and best suited for identifying the longer term direction
#4 The best periods for swing-trading
Swing traders have a very di"erent approach and they typically trade on the higher time frames (4H, Daily +)
and also hold trades for longer periods of time. Thus, swing-traders should first choose a SMA and also use
higher period moving averages to avoid noise and premature signals. Here are 4 moving averages that are
particularly important for swing traders:
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50 period: The 50 moving average is the standard swing-trading moving average and very popular.
Most traders use it to ride trends because it’s the ideal compromise between too short and too long term
100 period: There is something about round numbers that attract traders and that definitely holds true
when it comes to the 100 moving average. It works very well for support and resistance – especially on the
daily and/or weekly time frame
200 / 250 period: The same holds true for the 200 moving average. The 250 period moving average is
popular on the daily chart since it describes one year of price action (one year has roughly 250 trading
days)
New: The Best Indicator Strategies
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Step3: How to use moving averages – 3 usage examples

Now that you know about the di"erences between the moving averages and how to choose the right period
setting, we can take a look at the 3 ways moving averages can be used to help you find trades, ride trends and
exit trades in a reliable way.
#1 Trend direction and "lter
Market Wizard Marty Schwartz was one of the most successful traders ever and he was a big advocate of
moving averages to identify the direction of the trend. Here is what he said about them:
“The 10 day exponential moving average (EMA) is my favorite indicator to determine the major trend. I call this
“red light, green light” because it is imperative in trading to remain on the correct side of a moving average to
give yourself the best probability of success. When you are trading above the 10 day, you have the green light,
the market is in positive mode and you should be thinking buy. Conversely, trading below the average is a red
light. The market is in a negative mode and you should be thinking sell.” – Marty Schwartz
Marty Schwartz uses a fast EMA to stay on the right side of the market and to filter out trades in the wrong
direction. Just this one tip can already make a huge di"erence in your trading when you only start trading with
the trend in the right direction.
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The Golden Cross and the Death Cross
But even as swing traders, you can use moving averages as directional filters. The Golden and Death Cross is a
signal that happens when the 200 and 50-period moving average cross and they are mainly used on the daily
charts.
In the chart below, I marked the Golden and Death cross entries. Basically, you would enter short when the 50
crosses the 200 and enter long when the 50 crosses above the 200 periods moving average. Although the
screenshot only shows a limited amount of time, you can see that the moving average cross-overs can help
your analysis and pick the right market direction.
#2 Support and resistance and stop placement
The second thing moving averages can help you with is support and resistance trading and also stop
placement. Because of the self-fulfilling prophecy we talked about earlier, you can often see that the popular
moving averages work perfectly as support and resistance levels.
Word of caution: Trend vs ranges
Moving averages don’t work in ranging markets. When price ranges back and forth between support and
resistance, the moving average is usually somewhere in the middle of that range and price does not respect it
that much.
The screenshot below shows a price chart with a 50 and 21 period moving average. You can see that during the
range, moving averages completely lose their validity, but as soon as the price starts trending and swinging,
they perfectly act as support and resistance again.
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#3 Bollinger Bands and the end of a trend
The Bollinger Bands are a technical indicator based on moving averages. In the middle of the Bollinger Bands,
you find the 20 periods moving average and the outer Bands measure price volatility.
During ranges, the price fluctuates around the moving average, but the outer Bands are still very important.
When price touches the outer Bands during a range, it can often foreshadow the reversal in the opposite
direction when it’s followed by a rejection. So, even though moving averages lose their validity during ranges,
the Bollinger Bands are a great tool that still allows you to analyze price e"ectively.
During trends, Bollinger Bands can help you stay in trades. During a strong trend, the price usually pulls away
from its moving average, but it moves close to the Outer Band. When price then breaks the moving average
again, it can signal a change in direction. Furthermore, whenever you see a violation of the outer Band during a
trend, it often foreshadows a retracement – however, it does NOT mean a reversal until the moving average
has been broken.
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In my own trading, I use moving averages for one of my setups as well and they help me find great trades week
after week. If you want to learn how to trade like a professional, take a look at our premium trading courses
——————
Read the article in German: Auf Deutsch
——————
Bonus: My personal tips on !nding a good trading strategy
What Is A Trading Strategy? Step By Step To Make Your Own
Related Products & Courses
14 indicator strategies Trend Rider indicator

Learn the best settings A powerful indicator framework
9 of 13 5/4/19 10:23 PM
Best entries with set targets and more Powerful entry signals
Many trade studies Step by step trade detection
Click to learn more: The 14 best indicator Click to learn more: The Trend Rider
strategies indicator
Watch video in full size Watch video in full size
COMMENTS ( 9 )
Romz
09 Mar 2018
thank you idol..its inspire me lot..
REPLY
Saba
21 Mar 2018
Is the Forex course on your site the only course I’ll need to buy or is there a pro level and
another level after that? I guess I want to know how much investment is needed to get to the top
level of forex trading? Do you have daily/weekly setups or signals or webinars? How do students
interact with you?
Sorry for all the questions…
10 of 13 5/4/19 10:23 PM
Rolf
25 Mar 2018
Hi Saba,
yes, it’s really all you need and every week I add a new video with the best setups
for the next days. No signals but I break down the whole Forex market and share
what I am interested in trading.
I am available every day in the forum and I answer all questions at least once or
twice per day. I also review trades in the private forum and provide help where I
can.
Rolf
REPLY
Romy
04 Jul 2018
This is very helpful. Thank you for sharing this.
REPLY
Kelly
27 Jul 2018
Thanks for the insight into Moving Averages, and Bollinger bands!
REPLY
William
10 Sep 2018
this material is really helpful, i appreciate you, thanks man.
REPLY
Pedro
25 Oct 2018
Hello! I think your material is excellent. What course do you recommend for a begginer? The
11 of 13 5/4/19 10:23 PM
Rolf
29 Oct 2018
Hi there and thanks
that really depends on which market do you want to trade but generally most of
our students start with the Forex course.
Rolf
REPLY
Ehsan
09 Apr 2019
Hi
Can you help to set EMA? I can’t find it in indicator list! I’m a day-trader. Need this:
9 or 10 period
21 period
50 period
REPLY
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HOW TO USE MOVING AVERAGES – MOVING

Quick Links About Us Risk Disc

How To Use Moving Averages – Moving Average Trading

Read the article in German: Auf Deutsch

Step 1: What is the best moving average? EMA or SMA?

#1 The di!erences between EMA and SMA

#2 Pros and cons – EMA vs SMA

Step 2: What is the best period setting?

#2 The self-ful"lling prophecy

#3 The best moving average periods for day-trading

#4 The best periods for swing-trading

New: The Best Indicator Strategies

Step3: How to use moving averages – 3 usage examples

#1 Trend direction and "lter

The Golden Cross and the Death Cross

#2 Support and resistance and stop placement

Word of caution: Trend vs ranges

#3 Bollinger Bands and the end of a trend

Read the article in German: Auf Deutsch

Bonus: My personal tips on !nding a good trading strategy

What Is A Trading Strategy? Step By Step To Make Your Own

Related Products & Courses

14 indicator strategies Trend Rider indicator

Best entries with set targets and more Powerful entry signals

Many trade studies Step by step trade detection

Watch video in full size Watch video in full size

thank you idol..its inspire me lot..

This is very helpful. Thank you for sharing this.

this material is really helpful, i appreciate you, thanks man.

Hi there and thanks

Your Name Your Email

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