20 Period Moving Average Strategy
One can choose a moving average to trade with based on the chart time frame that they use for trading: a trader might choose the moving average to trade 1 minutes trading chart, 1 hour chart, 4 H chart, daily chart or even week chart.
A trader can also choose to average the closing price, opening stock price or median stock price - when choosing a Moving Average indicator.
Moving average is oftenly used to estimate momentum of trends. The data of the moving average is precise & its output as a line can be customized to the preference of a indices trader.
Using the moving average indicator is one of the basic strategies to generate buy & sell signals which are used to trade in the direction of the price trend, since the moving average indicator is a lagging indicator & a trend following indicator. The Moving average indicator as a lagging technical indicator means that Moving Average tends to generate late and lagging signals as opposed to leading indicators. However, the MAs Moving Averages indicator as a lagging indicator gives more accurate stock signals & is less prone to whipsaw signals compared and analyzed to leading technical indicators.
Traders select and choose the moving average period to use when trading with this moving average indicator depending on the type of trading style method they use: short term, medium term & long term.
- Short term trading: 20 Period Moving Average Strategy
- Medium term trading: 50 Period Moving Average MA Strategy
- Long term trading: 100 Period Moving Average Strategy
The period of the Moving Average MA in can be measured in 1 minute trading chart, 1 hour chart, 4 H chart, daily chart or even week chart. For our indices trading strategy example we will use 1H chart period.
Short term moving averages are sensitive to stock price action and can identify trend signals faster than the long-term moving averages. Shorter term moving averages are also more prone to trading whipsaw signals compared and analyzed to long term moving averages.
Longterm moving averages help to avoid fake outs, but are slower in identifying new trends & reversals.
Because long-term moving averages calculate the price average using more stock price data points, the long-term moving average does not reverse as fast as a short term moving average & it is slow to catch the changes or reversals in the trend. However the longer term moving average is better when the market trend stays in force for a longer time.
The task of a trader is to find a moving average period that will spot trends as early as possible while the same time avoiding fake out signals -indices whipsaws. As a trader you will need to first test different moving average periods before deciding which moving average period is best fitted for your trading style method based on the results of the testing which you will do using different moving averages.
MA Period Strategy
Moving average indicator is a market trend following indicator that is used by traders for 3 things:
- Spotting the beginning of a new trend
- Measure the sustainability of the new trend
- Identify the end of a trend & signal a market trend reversal
The moving average indicator is used to smooth out the volatility of stock price action. The moving average indicator is an overlay indicator and it is super-imposed on the price chart.
On the moving average illustration explained & illustrated and shown below - the blue line represents a 20 period moving average, which acts to smooth out the volatility of the price action.
100 Period Moving Average MA Strategy - Moving Average MA Period Strategy - Moving Average MA Strategy
Calculation of the Moving Average MA Price Period
The moving average is calculated as an average of stock price using the most recent stock price data point -indices periods.
If a moving average uses the 20 period to calculate the moving average then it is referred to as a 20 period moving average, because most traders use the day chart as the standard stock price period we shall just refer to the moving average as the 20 day moving average.
To calculate the 20 day moving average the price of the last 20 days is averaged - and the average is then updated constantly after every new stock price period closes. So after each new stock price period close is formed the average is then re-calculated afresh using the most recent 20 periods, that is why this indicator is called a moving average MA because the average is constantly moving when stock price data is updated and re-calculated.
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