Moving Average (MA)

A simple and very popular trend-following technical indicator

About Moving Average

Moving Average (MA) is a simple technical analysis tool. It is used to identify direction of a trend or to determine support and resistance levels. This is a lagging trend-following indicator.

Moving Average is an easily adjustable indicator. Traders can use and choose any time period. A more common time period used is 15, 20, 30, 50, 100 and 200. The shorter the time period used will make the indicator more sensitive to price changes. The longer the time period, the less sensitive the indicator to changes in prices.

Moving Average which uses short time period is normally used for short term trading, whereas one that uses long time period is used for long term trading.

2 of the most used Moving Average are Simple Moving Average (SMA) and Exponential Moving Average (EMA).

Trading Application

Moving Average time period 15 on H1 chart

Moving Average time period 200 on daily chart

Moving Average with shorter time period will generate more trading signals than the longer period one

The chart on the left show that shorter time period is more appropriate to be used with Moving Average in shorter time frame and the target can be adjusted to match the short term trading goals. The chart on the right displays a 200-day Moving Average. MA(200) is used to catch bigger moves in longer time frame and more suitable for long term trading.

Price-MA Crossover

BUY when price crosses above the Moving Average. SELL when price crosses below the Moving Average. Stop loss is placed below/above the last low/high. Choice of Moving Average’s time period depend on the time frame selected. Smaller time frame like M15 would use lower time period when compared to higher time frame like D1 (Daily).

2-Moving Averages Crossover

BUY when price is above the shorter moving average AND short moving average crosses above long moving average. SELL when price is below the shorter moving average AND short moving average crosses below long moving average. Moving average with lower time period is the short moving average. The one with the longer time period is the long moving average.

Moving Average is best suited to trending market and not suitable for range/sideways market

Price-MA Crossover

BUY at open of the next bar/candle when price crosses above moving average with stop loss below the last low, as shown by the blue arrows and orange bars underneath them.

SELL at open of the next bar/candle when price crosses below moving average with stop loss above the last high, as shown by the red arrows and orange bars above them.

2-Moving Averages Crossover

In this example we use time period of 10 and 50 for the 2 moving averages. MA(10) is the short moving average and MA(50) is the long moving average.

BUY at open of the next bar/candle when price is above the short moving average and short moving average crosses above long moving average, with stop loss below the last low, as shown by the blue arrows and orange bars underneath them.

SELL at open of the next bar/candle when price is below short moving average and short moving average crosses below long moving average, with stop loss above the last high, as shown by the red arrows and orange bars above them.

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