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Are Moving Averages Really Simple to Use?

Jun 26, 2008
Moving averages are used by amateur and professional traders alike for very rewarding results. Finding moving averages that work for you might be a difficult task, but after finding the "perfect pair," moving averages provide huge results with little work.

Moving averages can make up a whole strategy

Many profitable traders have built proven strategies around a few moving averages. Whether in an uptrend or downtrend, moving averages are a great way to identify the major trend while placing positions that are set for the highest profits.

Moving averages can be used in a variety of ways. Many professional traders use moving averages to smooth out a price over the long term to ascertain a reasonable price, while others use a combination of averages to find when the market is entering a reversal. Regardless of the technique, moving averages provide for great profits when combined with other day trading strategies.

Moving averages are some of the easiest technical indicators to use because they are the easiest to understand and can be used in practically any market type: uptrend, downtrend or sideways trend. Moving averages are simply a mathematical calculation of the average market price over the X amount of days preceding the current bar. Essentially, the calculation is just a "running average" of the price for comparison to the current price or other average prices for the long term.

Many different ways to use moving averages

Traders have adopted many creative techniques for use with moving averages. They can be used as a trendline, showing both support and resistance, or to show just a basic average price. Moving averages are also used by some professional traders as a cross to show when the market is ready for and uptrend or downtrend after a long time in a sideways trend.

Finding a cross pair of moving averages can be difficult, but not impossible. A trader first needs to find two moving averages that move together to show the high and low points of a chart. Good moving averages, when crossed, will alternate between buy and sell signals. Finding a good pair usually includes using a moving average between 2 and 20, coupled with another moving average between 21 and 100. Profitable traders utilize a moving average cross between a small number and a much greater number to show short term reversals against the long term trend.

All traders should use moving averages

Whatever the application, moving averages deserve a spot on a trading platform. Many traders have luck using trendlines as a way to show long term trends, while others use them as a way to find reversals and key resistance. Either way, moving averages really are simple to use both for amateurs and professional traders alike.
About the Author
Leroy Rushing is an active, professional day trader; trading coach; and author. He is the Founder and CEO of Trading EveryDay, a provider of educational trading products and services that are available worldwide. Trading EveryDay has complimentary/FREE products, a Tools of the Trade eBook and a Trading Room Report , that are downloadable for your convenience.
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