How The Pro’s Trade Using Moving Average (MA) Technical Analysis


Hi Traders. Philip Thygesen here from Stock-Market-Strategy.
Before I start I just want to say that trading involves risk and hard work. So please do
your own due diligence before trading for real money. Today I am going to talk about
Moving Averages. I will give you some background information about Moving Averages and then
with the help of some charts show you the four difference things Moving Averages can
be used for. Finally I will give some ideas how to trade using Moving Averages in conjunction
with other indicators and/or chart analysis. If you go to our website www.stock-market-strategy.com
you will find a tab called education, technical analysis and Moving Averages. Here you will
find a written summary about Moving Averages including a chart showing you how to trade
using Moving Averages in conjunction with chart analysis. This is made to make it easy
for you to keep track of the information. You might even print this page out so you
can have it in front of you while writing your trading plan and/or back testing the
ideas shown here. Background Information about Moving Averages Moving Averages also known
as MA’s has been existent since the beginning of technical analysis as one of the most popular
tools in trading. They are easily calculated which is a key factor for its popularity because
in the old days you didn’t have automated charting packages to do all the calculation
for you. MA’s are mostly calculated by using the closing price of the bar. But it is also
possible to calculate by using opening price or high/low price. This bar could be a tick
bar, minute bar, daily bar and so forth. In the early days people only used daily charts
therefore many people refer to MA’s as daily MA’s but since the introduction of intraday
trading people are now referring to MA’s as a period value MA, like 20 period MA. MA works
as dynamic support/resistance. Traders often keep an eye on these MA’s as partly resolve
as self-fulfilling prophecy. Simple Moving Average, (the SMA) or the Exponential Moving
Average,( the EMA) is the most common MA. Simple Moving Average is created by calculating
using the average price of the stock over a certain amount of bars. So a 20 Simple Moving
Average on a daily chart will show you the average price for the last 20 daily bars.
So here we will have the average price of the last 20 bars. One of the problems with
Moving Averages is that they are lagging the price. Exponential Moving Average is challenging
this problem by putting more weight on the recent price bar. This mean that the EMA adapts
faster during the current rally or drop giving the traders a heads up. The MA’s smoothes
out the data making it easier to spot the trend. Here you see the MA up sloping so the
trend is up all the way. But without the MA it could have been difficult to see that the
trend stayed up during this time here where the price trades a little bit sideways. MA
also helps you filter out the noise in volatile market. For example here you see some big
swings and this might make you think that this could be the beginning of a new down
move but the MA stays upward so trend is still up helping us filter out the noise. Which
kind of MA should you use and which length should you chose? This is of course a personal
preference of the trader but I have asked myself. Why am I using a moving average? I
am using a moving average because I want to smooth out the data making it easier for me
to identify the trend. And second to filter out noise. So it makes sense for me to use
a Simple Moving Average for this purpose instead of EMA because the EMA adapts faster giving
me a little bit more noise or un-smoothen data. But after I have done my analysis which
is looking at my MA and see that it is down sloping. So the trend is down. I want a quick
entry to the downside. Here I want a quicker entry than the SMA gives me. So I am using
the EMA for this purpose. It gets me in faster giving me a better profit and risk to reward.
The length is something you have to back test and forward test because you might be trading
a different instrument or different timeframe than me. I have chosen a 50 Moving Average
and a 20 Moving Average because these are used a lot in the industry. Determine The
Trend Using Moving Averages MA’s can used for 4 things. Trend, value, entry and stop
loss. I am going to show you all 4 but I will start with trend. MA’s are a great tool for
helping you to determine the trend of the stock or future or whatever other instrument
you want to trade. First you can say that the slope of the MA determines the trend.
So when the slope of the MA is down you got a downtrend. When it is sideways you got sideways
market. And when it is up sloping you got an uptrend. Second you can also say that if
the price is underneath the MA you have a downtrend. The price is staying relative underneath
the MA here. When we come to this point here we are seeing equal price action on each side
so you can consider this sideways. And then we see the majority of the price, in this
case all the price above the MA the trend is up. You can use 2 MA’s to help you to determine
the trend. A short and a long. You can say for example that when the short one, in this
case the 20 Moving Average, is under the long one which is a 50 the trend is down. So in
this case the trend is down all the way until this point. Then you can consider the trend
to be up. Fair Value Determined By Moving Average Here is a second way to use Moving
Averages. I call it value. Whenever the price is near the MA it will have a fair value and
could be a place to initiate a position in a stock. Or whatever other instrument you
want to trade. Of course the word has to be taken as a lose term but after a rally. You
see a rally here and the price pulls back to the MA and here as well. You could imagine
that the last buyers bought at this average price and therefore it seems fair. How To
Enter Using Moving Averages Here’s a third way to use Moving Averages. You can use it
for entries. Many traders use MA’s for entries and this can be done in several different
ways. First a crossover of 2 MA’s because you want to go with the trend so you don’t
take the crossover to the downside. You only take it to the upside. So here’s a crossover
so this could be a long signal. Here is another crossover. This is another long signal. The
second way for using MA is for entries. Could be a close above the MA or under for that
matter. But in this case we do have an uptrend. So we only want to take long plays. So we
are looking for closes above the MA. Preferable after an amount bars closing underneath because
we do need a pull back for us to get an entry. So a close above the MA here could be an entry.
A close above here could be an entry. Or this one could be an entry. And here is a third
way to enter using MA. You can simply put a limit order at the MA. For example, here.
A limit order and you will in the trade. Here you can place a limit order. And there is
your entry. Using Moving Averages For Stop Loss Here is
the fourth way to use MA’s; stop loss and trailing stops. Earlier I told you that MA’s
work as dynamic support/resistance. So it makes sense for us to use the MA for stop
losses. You want to place your stop underneath support or stop above resistance. For trailing
stops MA’s are really good. They stay objective and don’t know how much profit you have on
your open position. Let’s assume you were in this trade from somewhere down here. You
see it climbs. You see the open profit. Every time it pulls back you get nervous. You want
to book that profit. But by using a MA as a trailing stop you would have stayed in this
trade all the way up here. So the MA helps you stay objective. Using Moving Averages
Combined With Chart Pattern Ok. You see how to use Moving Averages for trend determination,
to find value points, to get an entry signal and used for stop loss. But you can also use
Moving Averages together with other indicators or chart patterns. Here is an example of how
to use MA with chart patterns. I first identify the trend. I see that my MA is up sloping
so the trend is up. I will only take long plays. Second I look for patterns which should
occur above the MA. This tells me that the trend is strong since the consolidation all
happens above the MA. And third my entry which is a close outside the trend line on this
triangle. And here is a close above the trend line in this triangle. This ends today’s video.
I hope you have enjoyed it.

52 Replies to “How The Pro’s Trade Using Moving Average (MA) Technical Analysis”

  1. @Jono2415
    Thank you very much. Feel free to ask any questions. If there are any subjects you want us to make a video about dont hesitate to ask.

  2. @khanpreston1 It is up to you how you determine trend. Some traders use the slope of EMA or SMA. Meaning if the EMA or SMA is sloping/trending up then the stock is in an uptrend. Other traders use a rule that says that if price is above the EMA/SMA then the trend is up. At Stock-market-strategy we use the slope to determine the trend. We also uses something called phases. Download our free eBook to learn about the phases.

  3. @GaryFrankLewis ….if the entry on the lower time frame is still within the parameters in the higher time frame. Meaning: Uptrend on 5 min chart, pullback on 1 min chart. Pullback on 1 min chart should not have broken your trend lines or MAs or whatever tool you have used to determine the trend on the 5 min chart. Hope this helps

  4. @GaryFrankLewis A lot of traders are confused of how to use multiple time frames. I believe it started from Dr. Elders book where he mentioned how you get one signal on one time frame and then wait for signal on the other time frame. I have never been able to successfully apply this theory to real trading as the 2nd signal almost always comes when the first signal is no longer valid. How we use multiple time frames is by analyzing the trend and then drop down and get entry on lower time frame..

  5. I agree. These people who wrote about Forex were just trying to sell you stuff by posting links.

  6. some please explain how all this trading works i hear you can make a living off of this but i simply dont understand it all i see is lines help please and thank you for your time. 🙂 first person to help will get a sub and i will help get subs im a small channel but know alot of big people !

  7. so be aware when you teach making the difference between facts and opinions. that the price pulled back to the ema and then continued to go directional, this is a fact in the past that we see on chart. but to say that when the price reach the ema, after, in the future well do something specifically, it is a opinion and you need to specify that difference because the people need to know clearly that there is a risk to lose money because we can just think in therms of probabilities…

  8. being objective is all is need!
    don't teach facts that are not exist.

    the price are not reaching the ema!!! the price have not conciseness to do something. the price could do everything, come close to ema, touch the ema, cross the ema, cross back the ema and so on… independently of what price are doing, you don't know what will happened next and based on this unique truth you need to understand that everything else is pure interpretation of what the price had don in the past.

  9. Thanks for the video, short precise and very informative, I have subscribed and will watch your other videos too, thank you

  10. I've always wondered the same thing. I was wondering what the big deal about forex is. Am I missing something? Is there something about it I just don't see? Maybe it's more predictable for longer term trades; but I'm a day trader, and looking at forex charts, forex would seem very difficult to day trade; not to mention the ridiculous spreads on some of the pairs. That's why I've stuck to futures.

  11. Forex is the best to day trade! Use the Lmax to trade, its an exchange so you get very low spreads, under 1 pip on eur/usd.

  12. ma's give you the objectivity you need in a market that does not reward the subjective traders consistently. Forex is a better technical trading market than most everything else. It has the most leverage and you can make more if used properly. stocks have too much directional bias and futures goes thin overnight so that's no use for me. and i hate limit up/limit down days. one limit order wrong in those other markets when the market gaps up or down and your ass is grass!

  13. I used 50 SMA/EMA and daily charts. I recommend you watching my video on what length MA you should use.

  14. There is only one reason why people loose in this business: they are on there wrong side of a trade – instead of selling crappy trading product to gullible newbies they are buying them. Most of TA is BS but it is great product for marketing. Watch video "PROOF That Forex is RANDOM". In essence this guy takes a chart and is showing how TA is nicely describing market behaviour and psychology, human reactions to trendlines, support/resistance, Fibonacci etc. And then comes the punchline: this is not real chart but randomly generated candlesticks in Excel. This shows people that we see on charts what we want to see. TA does not beat the randomness of markets.

  15. Can I get access to these moving average charts? If so where at? I want to be able to type in my ticker symbol and have these moving average lines there.

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