What’s up Traders, in this article, we’re going to be talking about Best Moving Averages That Will Make You Tons Of Cash (For Day Trading Forex & Stocks).
Hey guys, let me ask you a quick question. Take a look at this chart with a 200 exponential moving average and try to find out what determined the price to reverse right in this area and was unable to move higher?
What hides there and what is so important in that area that made the price reverse and go the other way?
You could say that this is an area of resistance from the previous swing, and you would not be wrong. But there also something else hiding around that area.
And that’s another variation of a 200 moving average, and more specifically the 200 Hull moving average.
And here it is, a perfect short opportunity, at an area of confluence, with the previous swing and the 200 Hull moving average.
Best Moving Averages to use for Day Trading
- Popular among Trend following Traders
- Simple Moving Average – SMA
- Exponential moving average – EMA
- Triple Exponential Moving Average – TEMA
- Adaptive Moving Average – AMA
- Hull Moving Average – HMA
- Weighted Moving Average – WMA
- Jurik Moving Average – JMA
I‘m sure that many of you don’t use other types of moving averages besides the simple and exponential ones, but in this article, we’ll discuss about the other moving averages you should start paying attention to if you want to spot this kind of areas on your charts.
So, the moving average is probably the most well-known and heavily used indicator in technical analysis because it effectively captures the trend in an easily identifiable manner.
Popular among Trend following Traders
Moving averages are used to calculate the average value of the price over a determined period of time and are extremely popular among trend following traders.
Simple Moving Average – SMA
Here are the main moving averages used by traders: Simple moving average – SMA. The simple moving average (SMA), the most common one, represents an average of the closing price over a specified number of periods.
The simple moving average is more stable and signals the changes in price movements in Slow fashion. For you to see the differences between the moving averages, we’ll plot these averages on the same chart and we’ll use a 50 period in our analysis.
Exponential moving average – EMA
Then we have the exponential moving average (EMA). EMA gives a higher weighting to recent prices. The shorter the EMA’s period, the more weight that will be applied to the most recent price.
EMA formula is more complicated
The calculation method of an exponential moving average is much more complicated compared to a simple moving average. The most important thing to remember is that the exponential moving average is more sensitive to the recent price dynamics.
Triple Exponential Moving Average – TEMA
Now, things begin to get interesting. Here we have the triple exponential moving average – TEMA. The triple exponential moving average (TEMA) seeks to reduce the lag of a typical exponential moving average by tripling the weighting of recent prices.
TEMA responds to market movements quicker than the SMA or EMA.
Adaptive Moving Average – AMA
Then, we have the adaptive moving average – AMA The adaptive moving average (AMA) was created to improve the original exponential moving average. The adaptive moving average multiplies the weighting of an EMA by a volatility factor.
Thus, AMA adapts more quickly to the market by signaling when volatility conditions change. Its main advantage over other moving averages is the fact that filters the noise in the trend and automatically changes its speed considering the market volatility.
Hull Moving Average – HMA
Then, we have the Hull moving average – HMA Hull moving average (HMA), was developed by Alan Hull, is a fast moving average, responsive and with reduced lag.
Hull used several weighted averages in calculating this moving average and claimed that this formula reduces market lag and increase smoothness at the same time.
Weighted Moving Average – WMA
Another type of moving average is the weighted moving average – WMA The weighted moving average (WMA) was designed to find trends faster but without whipsaws.
The weighted moving average offers more relevance on recent price moves and reacts more quickly to price movements than the simple moving average or exponential moving average.
Jurik Moving Average – JMA
And finally, the Jurik moving average – JMA. Jurik moving average (JMA) is used by some institutional traders. Jurik claims that the jma is a powerful adaptive tracker that can smooth time series data with very a small lag, no overshoots and no oscillations.
Traders use different settings of moving averages for different reasons.
Choose type of the your Moving Average based on your objectives
- Long-term Moving Averages – 200EMA, 365 EMA
- Medium-term Moving Averages – 50EMA, 100EMA
- Short-term Moving Averages – 10EMA, 20EMA
- Fibonacci Moving Averages
Some are interested in the long-term trend, others want to trade based on the short-term trend. The length input of a moving average depends on the objectives of the trader.
Shorter moving averages are used for short-term trading while longer-term moving averages are used by long-term investors. Taking into account the length of a moving average followed by traders, there are 3 categories of moving averages.
Long-term Moving Averages – 200EMA, 365 EMA
First is the long-term moving averages – 200EMA, 365 EMA The most common exponential moving average is the 200 EMA and many traders apply it on daily charts.
It is believed that many institutions like banks, hedge funds, forex dealers are following this indicator.
If we take a look at this indicator on any currency pair, commodity, market index or even cryptocurrencies, we can immediately see its value.
Medium-term Moving Averages – 50EMA, 100EMA
Then, the medium-term moving averages – 50EMA,100EMA Many traders prefer to use the 50-period moving average (50EMA). This is considered a faster moving average as fewer input periods are used.
The primary effect is that this moving average will react more to medium-term movements. 50 EMA is considered one of the most effective trend indicators, offering also dynamic support and resistance levels on a chart.
Short-term Moving Averages – 10EMA, 20EMA
Also we have short-term moving averages – 10EMA, 20EMA Short term mas are preferred by traders that want to trade with current market momentum. The most common short term exponential moving averages are 10EMA and 20EMA.
Fibonacci Moving Averages
These EMAs react the fastest to price movements. Fibonacci moving averages – 5, 8, 13, 21, 34, 55, 89, 144 EMAs. Some traders often take their input values for EMAs from the Fibonacci sequence.
Lagging Indicators based on past information
Most common Fibonacci-based exponential moving averages are 5EMA, 8EMA, 21EMA, 55EMA, 144EMA and so on. Traders must keep in mind that exponential moving averages are lagging indicators as they are based on past information.
200MA will have a much greater lag compared to a 50MA because it includes market prices for the past 200 periods. The short-term EMAs respond more quickly to new price changes, but at the same time offer more false signals.
Find a Balance
So, a trader must find a balance when using exponential moving averages. Choosing one of the types of moving averages depends directly on the style and preferences of each market participant.
A simple moving average responds more slowly to new price changes, while exponential moving averages or weighted moving averages provide a larger number of trading signals, many of which may be false. So, it all depends on your trading style and your trading objectives.
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