18. How to Trade Moving Averages Like a Pro Part 1



Practice these concepts with a free practice charting and trading account here: http://bit.ly/apextrader Check out other videos in our free beginner course here: http://www.informedtrades.com/index.php?page=freetradingcourses Looking to access our videos without ads? Become an InformedTrades Patron to download all videos: http://www.informedtrades.com/index.php?page=vault2 Don't forget to jump start your learning as a trader by registering as a member of our learning community: http://www.informedtrades.com/register.php And of course, check out the full lesson that goes with this video -- which includes text, links, images, and discussion -- on http://www.informedtrades.com/3754-introduction-simple-exponential-moving-average-ema-forecasting-model-calculation.html VIDEO NOTES: The basics of trading with moving averages in two lessons for active day traders and investors in the stock market, futures market, and forex markets. Moving average as a trading indicator In our last lesson we gave an introduction to technical analysis, which started our latest series of lessons on how to use these in your trading. In this lesson we are going to start with looking at one of the most popular technical indicators, the moving average. Exponential moving average and simple moving average There are several different types of moving averages, which we are going to explore here, all of which are used by traders to try and smooth out the price action of a financial instrument, and get a better feel for the longer term direction without all the noise that is often associated with just looking at the price. In addition to getting a better feel for the longer term trend of a financial instrument, moving averages are also used to spot potential support and resistance levels, and are often used in conjunction with one another to generate buy and sell signals. Before we get into the details however, let's first have an overview of the two main types of moving averages: the simple moving average and the exponential moving average. The Simple Moving Average Model The simple moving average is the most basic of the moving averages and is calculated by taking the past x number of points averaging them, and then plotting the resulting line on a chart. The reason it is called a moving average is because as new data points become available the average moves forward to incorporate the new data point and drops the last data point in the series. For example, if a trader plots a 10 day moving average on a chart the last 10 days of trading are averaged to come up with the most recent point plotted on the moving average line on the chart. On the next day of trading the data point, which occupied the first day used in the above moving average is dropped from the equation, the data point which was day two in the equation becomes day 1, and the next day of trading becomes the 10th data point in the equation. I included this example here so you can simply have a basic understanding of how the average is calculated, however any charting package which you use should automatically do the calculations for you. The Exponential Moving Average (EMA) : Critics of the simple moving average argue that it is too simple in the sense that it gives the same weight to each point in moving average calculation. The problem with this it is argued is that the more recent data points deserve a greater weighting in the formula as they are more relevant to the future price action of the instrument. To solve this problem traders came up with the exponential moving average, which gives more weight to the more recent price points in calculating the moving average line. Whatever chart package that you end up using should automatically calculate the exponential moving average for you but for those who want to know the formula for doing so is below: When the simple moving average and the exponential moving average are plotted together on a chart you can see that the exponential average reacts faster to the most recent price action. Moving averages can be created from any number of trading periods however the most commonly used are the 200 day moving average and the 50 day moving average followed by the 15, 20, and 100 day moving averages. Whether traders use the simple or exponential moving average normally depends on trading style and the financial instrument that one is trading. As the simple moving average is slower to react than the EMA, traders will often use the SMA for trading longer term moves and EMA's for shorter term moves. Traders will often look at how different financial instruments have reacted in the past using both types of moving averages and then pick the one that has best represented the types of moves they are trying to trade. Lastly, some traders are firm believers in price and volume, and do not use any technical indicators in their trading.

Comments

  1. great video telling the truth, I did not need to buy the program to know it is a scam?, i use ANDY LANK METHOD for daily income.
  2. Remember one thing, so many traders are using exactly the same technical analysis, thus why so many traders ultimately lose their money...I take an average of 300 points a week and have been doing so consistently for 3 years now...until you learn to trade YOUR way and not the same as everyone else you will continue to fail
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  7. I love using moving averages in my trading. It's the only indicator that I use and find entries completely using price action with the pipdaq setups and it's super!
  8. @srfxwir Its not that hard, I'm at about 490% and climbing. You need a better trading strategy. I use this for 80% of my trades. Check out the video -> bit.ly/NsYahY?=rrnngp
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  10. i don't think you really understand what moving average is. some level moving average are not accurate at all.
  11. thank you so much!!!! =)
  12. have you covered the channel or wedge in your videos? i can't find them :(
  13. Hi David, Thanks fora great video. Where can I see more of your videos?
  14. Thanks for your nice video. I don't want to seat with my computer all the day. I prefer free forex robot
  15. You may want to take a look at this video "Simple Trading System-Moving Average Crossover That Works" . This system avoids whip saws and is really simple to use. If you contact me at Trade Guild .net I'll give you the code for the custom indicator used.
  16. Great Video !!! Thank you for taking the time to share this knowledge.
  17. i prefer Free Forex Robot
  18. I notice you are only demonstrating one MA line. But I often see an MA for a 10, and 30 day. What is the difference, and what days would you recommend to use?
  19. I'm just getting started with trading. I'm about 2 months in. A month ago, I went to a seminar where they showed examples including what you just said, as well as combining the EMA with MACD and Stochastic's, and they made it look simple to win big. As I have tried the techniques, I have found that I am doing better than the average of the specific financial instrument, but by no means am I "getting rich quick". Think about each move you make and try to mitigate risk with stop losses, etc.
  20. Dave, I started looking at chart after chart with the 50 DMA. If I just own the stocks when above and sell when below, (and also do this with bear ETF's) do you see any negatives in doing this? As far as I can tell, this seems too simple to be true. I feel like I've just become a hedge fund manager and discovered the secrets to the universe, and it is such a simple secret. What am I missing?


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