![]() The simple moving average gives equal weight to each data point in the calculation range.Īn exponential moving average on the other hand places a greater weight and significance on the most recent data points. Which is best?Ī simple moving average is calculated by adding recent prices and then dividing that by the number of time periods in the calculation range. Let’s take a look at my favorite moving averages to use in my weekly options trading. The key is to have a reliable system in place that will put the odds in your favor over time. It can often lead to a never ending pursuit of the perfect trade. There are endless ways of approaching markets with these different indicators. Login to any charting platform and you will see dozens of different technical indicators that can be used to help identify trade opportunities. Using a few moving averages is a great way to identify options trading opportunities. This is due to my tendency to over analyze trades. The more layers I add into my system, the worse my trading tends to be. Moving averages are very basic in function but can be very powerful since every trader out there uses them.įor me, simplicity is key. I have found a handful of moving averages to be very helpful for identifying different trade opportunities. That is the sweet spot that I have identified when using many types of strategies. I consider a swing trade holding a position for a period of 2 days on out to 4 weeks. Over the longer term, the system does tend to work, but it takes a certain amount of patience to make money trading like this.My preferred style of trading is swing trading using various options strategies. ![]() However, there are a couple that produced large gains. As you can see on this chart, there are several signals that would have fired off with small losses. You are constantly in the market, either buying or selling. ![]() You must be able to deal with several short-term losses followed by a couple of longer-term gains. Because of this, you can get several false signals, but longer-term runs in the market are possible, leading to larger profits. However, it helps if you have some type of trend established. The idea is to follow the market in both directions. When it moves below the longer-term period moving average, it shows that selling pressure is increasing. When the shorter period moving average crosses above the longer timeframe moving average, it shows that buying pressure is increasing. These are signals that traders tend to pay attention to. As you can see, the red moving average has crossed both above and below the blue moving average. The 10 moving average is in red, while the 20 moving average is in blue. In this example, I have the Australian dollar against the US dollar, daily timeframe. The idea is that when the shorter moving average crosses over the longer moving average, it shows that the near-term momentum is changing course. In this system, the premise is that the faster moving, or 10 candle moving average shows short-term momentum, while the 20 candle moving average shows a bit more longer-term momentum. In other words, a 10 simple moving average would be the average price of a financial instrument over the last 10 candles. A moving average is simply an average price of a set number of candles. One of the more common and probably oldest trading systems out there is the “10/20 Crossover System.” This system relies on 2 moving averages, one focusing on 10 candles, while another is focusing on 20. The Moving Average Strategy “The 10/20 Crossover System” Explained The Ultimate Moving Average Strategy – The 10/20 Crossover Systemĭo you want to know more about Moving Average and moving average crossover? With our ultimate moving average strategy you will learn what moving averages are, how to trade with moving average and much more.
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