Leading Stock Indicators
MA Leading Indicators
A trader can select a moving average MA based on the chart time frame that he is trading: the online trader may select to use this Moving Average indicator onto the minute charts, hourly trading charts, daily charts or even week charts.
The trader can also select to average the closing price, opening price or median price.
Moving average indicator is a oftenly used indicator to measure strength of the trends. The data is precise and its output which is a moving line can be customized to fit a stock index trader's preferences.
Using the trading moving average is one of the basic ways to generate buy and sell trade signals which are used to trade in direction of the trend, since the Moving Average indicator is a lagging indicator & a trend following indicator - this means that it tends to give late indices entry signals as opposed to leading indicators. However, as a lagging indicator it generates more accurate signals and is less prone to fake outs compared and analyzed to leading indicators.
Traders select the moving average period to use depending on the type of trading they do: short-term trading, medium-term trading and long term trading.
- Short-term trading: 10 - 50 Moving Average Period
- Medium-term trading: 50 - 100 Moving Average Period
- Long-term trading: 100 - 200 Moving Average Period
The price period in this instance can be measured in minute trading charts, hourly trading charts, daily charts or even week charts. For our example we will use H1 chart time frame period.
Shortterm trading moving averages are sensitive to price action and can spot trends signals faster than the longterm MAs. Shorter term trading moving averages are also more prone to whipsaws compared and analyzed to long-term moving averages and a stock index trader should choose a price period that will generate a signal early but not give too many trading whipsaws.
Longterm trading moving averages help avoid indices whipsaws, but are slower in spotting new trends & trend reversals.
Because longterm MAs calculate the market price average using more price info, it doesn't reverse as fast as a short term trading moving average & it is slow to catch changes in the market trend. However, the longer term trading moving average is better when the trend stays in force for a longer time but may also give late signals.
The work of a trader is to find a moving average period which will spot trends as early as possible while the same time avoiding fake-out signals (indices whipsaws).
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