Which moving average is best for day trading

It is never ideal for swing and long-term traders to use a minute chart. Therefore, the best MA to use in a minute chart should be relatively short. For example, it does not make any sense to use a period MA on a minute chart.

It also does not make sense to use a MA for such a chart. Instead, you should use relatively shorter-dated moving averages. For example, the chart below shows the minute chart of the Nasdaq with a period and period EMA. You should use the day, day, and day moving averages when you are looking at long-term scenarios. For example, when you want to buy and hold a security for two weeks or a month, you should use a longer-term moving average.

Similarly, if you are looking at short-term situations, you should look at shorter-term moving averages. The first thing you need to master the skills of moving averages is the period. In trading, you can trade charts on various timelines. It is possible to trade one-minute charts up to yearly charts.

Each of these charts require different types of analysis. A person who looks at annual or monthly charts is probably a long-term investor who wants to open trades and leave them to run for a certain period of time.

As a day trader, it is irrelevant to use these charts. As such, an investor should use long term periods. In this, the commonly used period is days. A day trader will aim to enter a trade and exit within a few minutes or hours. To do this, the trader needs to have a short term chart between 5-minutes and one-hour. Then, the period used should be short as well.

Moving Averages are trend indicators , so they show a trader whether a trend has formed or not. To make efficient decisions, it is important to combine these MAs with other technical indicators. A good strategy is to combine MAs with volume-based indicators, and oscillators.

You should strive to combine MAs with only a few indicators because doing so with many indicators will hamper your decision making. It is also important to always look at the fundamentals of any asset that you want to buy or sell.

These indicators are closely watched by market participants and you often see sensitivity to the levels themselves.

A decisive break of a well-followed moving average is often attributed importance by technical analysts. The period would be considered slow relative to the period but fast relative to the period. The exponential moving average EMA is preferred among some traders. Unlike the SMA, it possesses multiplying factors that give more weight to more recent data points than prior data points. As a result, the EMA will react more quickly to price action. This can give a trader an earlier signal relative to an SMA.

Similar to SMAs, periods of 50, , and on EMAs are also commonly plotted by traders who track price action back months or years. EMAs tend to be more common among day traders, who trade in and out of positions quickly, as they change more quickly with price. EMAs may also be more common in volatile markets for this same reason.

The buy and sell signals are the same as with other MAs with the same pros and cons as with all Moving Averages. As with the DEMA, a longer period TEMA may be needed, even if the trader is primarily focussed on short tern trading, as there are likely to be multiple false signals in ranging markets. To reduce this phenomenon, a longer DEMA e.

Again, this is a trend following indicator and is thus less useful in rangebound markets. Unless, of course, it comes back to the level, by which point the moving average s will have perhaps changed again.

Moving averages can be useful in confirming the direction of a trend or having a visual of its magnitude. But it should have an ancillary role in an overall trading system.

Some traders use them as support and resistance levels. And some combine various moving averages and use crossovers of different ones to confirm trend shifts and entry points. But like all indicators, there should be confluence among different tools and modes of analysis to increase the probability of any given trade working out. Moving averages are most appropriate for use in trending markets. Traders will pay attention to both the direction of the moving average as well as its slope and rate of change.

Trend changes and momentum shifts can be easily picked up in moving averages and can often be seen more easily than by looking at price candlesticks alone. Oftentimes traders will trade only in the direction of the trend as determined by the moving average, or a set of them.

For example, if , , and period moving averages are all in alignment as positive sloped, the trader may bias all his or her positions to the long side. As mentioned in the previous section, moving averages themselves are best not used in isolation to generate trade signals on their own. Therefore, the system will rely on moving averages. The reality is that I would jump into trades that would never materialize or exit winners too soon before the real pop.

I think this feeling of utter disgust and wanting to never think about trading again is part of the journey to consistent profits. Going back to my journey, at this point it was late fall, early winter and I was just done with moving averages. Technical indicators and systems lead to more indicators to try and crack the ever-elusive stock market. I would try one system one day and then abandon it for the next hot system. This process went on for years as I kept searching for what would work consistently regardless of the market.

If you get anything out of this article, do not make the same mistake I did with years of worthless analysis. After many years of trading, I have landed on the period simple moving average. At times I will fluctuate between the simple and exponential, but 20 is my number. This is because I have progressed as a trader from not only a breakout trader but also a pullback trader.

I use the period moving average to gauge market direction, but not as a trigger for buying or selling. It all comes down to my ability to size up how a stock is trading in and around the average. I just wait and see how the stock performs at this level.

Absolutely not. In other words, mastering the simple moving average was not going to make or break me as a trader. However, understanding how to properly use this technical indicator has positioned me to make consistent profits. The first two have little to do with trading or technicals. Both disadvantages deal with the mental aspect of trading, which is where most traders struggle. This is something I touched on briefly earlier in this article, essentially with a lagging indicator, you will never get out at the top or bottom.

You might be thinking, well if we make money that is all that matters. You could fall into the trap of doing look backs on your trading activity and languishing at all the loss revenue from exiting too early. Otherwise, you try to let go. You stop obsessing about what you did not receive and start being thankful for what you have. You are going to feel all kinds of emotions that are telling you to just exit the position. Or that you have made enough. Or that the pullback is going to come, and you will end up giving back many of the gains.

You must find some way of just charging through all of that and letting the security do the hard work for you. We have been conditioned our entire lives to always work hard towards something.

The market is a lot like sports. A lot of the hard work is done at practice, not during game time. The obvious bone of contention is the amount of lag for moving averages.

This becomes even more apparent when you talk about longer moving averages. First, Cannivet points to a study by Meb Faber. The takeaway here is to use the longer averages to gauge if a stock is in a bullish or bearish trend. We would be remiss not to discuss this, as the comparison of the simple moving average to the exponential moving average is a common question in the trading community. The formula for the exponential moving average is more complicated as the simple only considers the last number of closing prices across a specified range.

The exponential moving average, however, adjusts as it moves to a greater degree based on the price action. To see an actual example of how the formulas differ, check out this article from dummies. It is going to come down to your preference. If you like clean charts, stick to the simple moving average. If you feel that you need to try and capture more of your gains, while realizing you may be shaken out of perfectly good trades- the exponential moving average will suit you better.

Are you able to guess which line is the exponential moving average? You can tell because even though the SMA and EMA are set to 10, the red line hugs the price action a little tighter as it makes its way up. The only time there is a difference is when the price breaks.

This is because the SMA is slower to react to the price move and if things have been trending higher for a long period of time, the SMA will have a higher value than the EMA. As you can see, the EMA red line hugs the price action as the stock sells off. But then something happens as the price flattens.

The slower SMA is weighing all the closing prices equally. Therefore, it continues to decline at a faster rate. The EMA will stop you out first because a sharp reversal in a parabolic stock will not have the lengthy bottoming formation as depicted in the last chart example.

Hopefully by now you understand that the simple moving average is not an indicator you can use as a standalone trigger. Think of the SMA as a compass. Road signs, if you will. If you want detailed coordinates, you will need other tools, but you at least have an idea of where you are headed. With that in mind, here are the four key points to remember when trading with SMAs:.

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Table of Contents. Combined SMAs. Trading SMA Trends. Simple Moving Average Example. Flat Simple Moving Average. Simple Moving Average — Perfect Example. SGOC trend change through simple moving average. SGOC countertrend trade. Develop Your Trading 6th Sense.