![]() ![]() The 200 moving average (200MA) is the trend bias. The 50 moving average (50MA) is the medium term outlook. The 20 moving average (20MA) is the short-term outlook. They are the 20 moving average, the 50 moving average and the 200 moving average. There are three important moving averages that can be applied to your charts that will help you trade better. I will demonstrate how easy it is to use moving averages to help you make money from trading, and also to help you understand when to stand aside and avoid losing money in the markets. This article will just be covering how to use moving averages. You can apply other techniques to help you buy the best stocks, CLICK HERE to learn more. One way of achieving this is by using one of the oldest and simplest trading tools…Moving Averages. In order to be successful at trading we must learn to keep trading simple. Raindrop Chart courtesy of with the 20, 50 & 200 Moving Averages If you are interested in seeing the backtesting data on moving average signals for both EMAs and SMAs you can check out my book here: 50 Moving Average Signals that Beat Buy and Hold. If you are trading crossover signals then the exponential moving average will probably give you more of an edge by getting you in and out faster than a simple moving average when you look at the backtests for most markets. What is the best moving average? If you are using long term moving averages like the 50, 100, or 200 day the simple moving average will likely give the most accurate level. I have found better backtesting results on EMA crossover signals overall than SMA cross over signals in my hundreds of hours of backtesting moving average systems on the stock market. An EMA can work better in faster markets that move more in shorter time frames as it is more adaptive to present price data and will get you in and out quicker than an SMA. The EMA calculations decreases the weighting of older price data and increases the weighting of newer price data based on how many days old the prices are. The EMA starts with the SMA data but adds a multiplier to the more recent price data points than the past ones. The exponential moving average is a faster moving average and gives more weight to recent prices than past prices and changes more quickly to adapt to the current market trend. Also the majority of traders tend to use the simple moving average for longer term moving averages like the 50 day and the 200 day simple moving average so you can see more responses of buyers and sellers around those key lines because they are more popular than the EMAs on those time frames. It tends to work better on slower markets like market indexes and big cap stocks as they tend to move less in percentage terms and more time can be taken to get in and out in most situations. ![]() The simple moving average is a slower signal to get you in and get you back out of a trade. On a 10 day simple moving average one day is weighted as one tenth of that moving average. It is slow to react to changes in price action as each data point is just one of the total sequence of data points. The simple moving average is just that, simply the moving average over the period of your chosen time frame. I get asked all the time the question: “What moving average is better the simple moving average or the exponential moving average?” The answer to this is that it depends on the market you are trading and what your backtests show on your specific markets. ![]()
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