Moving Averages are a trendy and straightforward tool in Technical Analysis for trading stocks, forex, cryptocurrency, and every security that you can think of They can be combined with several indicators or alone, depending on your trading strategy.

Moving Averages are those lines that you may see on my screen when I use TradingView for my daily technical analyses on YouTube, precisely the ones that overlay the candlesticks; I may display up to six in my trading templates, depending on which ones I find more useful at that moment and if you join the tribe of promising traders in my inner circle (completely free) you will soon find out that there is no such thing like the perfect system that tells you exactly which moving average to use, they change based on the timeframe, your style and the instrument that you are trading as each has its own “personality”. My very first strategy, the one that I share privately with the other promising traders is exactly about adapting your moving averages to what best fits in that moment with the purpose to find the best moving average crossover for swing trading.

Warning

This is no financial advise, all the content and the ideas present in this page and all the other pages of the website do not guarantee financial success and may lead to a loss of your money. You should always do your own due diligence before trading or seek professional advise.
If you want to learn how to trade risk free, you want to learn paper trading first. Check this tutorial out, I will take you through all the necessary steps to set up your free account on TradingView and place your ‘monopoly money’ traders in the real market.

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What is a moving average

A Moving Average is a straightforward point in the chart; it represents the average of the closure (usually is the closure, but it can be changed to your heart’s content) price of a determined period.

This period is the choice of the technician. Usually, it is the number of candles starting from the last, going backward in the past.

For instance, if we have a Moving Average for the previous ten candles, we will have a point in the present chart that represents the average of the closure price of those previous ten candles.

As the chart progresses, there will be many more points (each based on the previous ten movements, for this example) and if we connect these points between each-other, there we have the Moving Average lines that you can see in the charts.

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What is a moving average

  • A Moving Average is a straightforward point in the chart.
  • It represents the average of the price of a determined period.
  • It is the number of candles starting from the last, going backward in the past.
  • The period is the choice of the technician.

What are moving averages used for

Moving Averages are used by traders as a system to identify the trend; whether bullish or bearish of a specific market. It does not matter if it is options, futures, forex, stocks, or cryptocurrency; they are effective everywhere, with every time frames for every kind of trader, in fact they are great for day trading and swing trading, as long as the market is trending, if the market is not trending, the moving averages become pretty much useless.

There could be several strategies based on Moving Averages; some require one single Moving Average, where others need multiple ones, and some require the usage of other indicators in combination with them. In this article, I will give you a straightforward strategy with just one Moving Average for swing trading, but because TradingView allows having more than one, I would recommend using them all, and therefore, I will provide you with a simple strategy and a more elaborated one, which is one of my own strategies.

In this lesson, I will show you how to install my candle scanner and how to configure TradingView for these strategies:

If you want to learn more swing trading strategies, I could not recommend the Swing Trading course from Steve Nison’s academy, which is fantastic and could be a life-changing course and I talk by experience as I only recommend products that I use and like. If you join the promising trader’s tribe I will also give you a sweet 20% discount code to purchase the course.

The Best Swing Trading Course

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What are moving averages used for

  • Moving Averages are used by traders to identify the trend of a specific market.
  • There are several strategies based on Moving Averages.
  • How to install the candle scanner.
  • How to configure TradingView for these strategies.

How to calculate the moving average

Although there may be variations on this, the most straightforward Moving Average formula that we can find is based on the closure price of a determined number of candles.

For instance, let us pretend that we want to use a 3SMA, which stands for 3 movements Simple Moving Average.

We have our latest candle, which is still being formed as it is in progress and the three previous candles having closed respectively at $5.00, $6.00, and $4.00.

The average is simply calculated with the traditional average formula, which consists of the sum of the values, divided by the number of values. In this case it would be 5+6+4, which is equal to 15, divided by 3 (the number of values that we are summing), which equals 5 and this means that in the chart, where our latest candle is, we will see the Moving Average point precisely at the price of $5.00 as that is the average of the previous three close prices.

Moving Average Formula part 2

The Exponential Moving Average has a slightly more complicated formula, which attributes a different weight to each moving average, according to its distance from the more recent one. For instance, the very first Moving Average before the current one has full weight in the calculation of the average, the next (therefore farther from the most recent one) has slightly lower importance and so on and so forth. Basically the real value is reduced by a particular ratio. This calculation makes the EMA more sensitive to changes in the price action of the market as the older effects have an exponentially lower impact compared to the most recent activities.

Moving Average Formula Part 3

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How to calculate the moving average

  • The most straightforward Moving Average formula is based on the closure price of a determined number of candles.
  • The average is simply calculated with the traditional average formula.
  • The Exponential Moving Average has a slightly more complicated formula.
  • The real value is reduced by a particular ratio.

Popular types of moving averages

Traders from all over the world use several Moving Averages to make their market analyses. They vary based on the kind of trades/investments that they make and based on the length of these investments.

For instance, a short SMA, in other words, a short Simple Moving Average like 5, or 9, or 10; respectively averaging the close previous 5, 9, or 10 prices, is used as an indicator for short periods, which means that it generates a line that moves more and more rapidly than a 200 SMA for instance.

The smaller the number, the quicker the Moving Average, and the more sensitive this line is, compared to the price actions in the charts; while the higher the number, the smoother the line will be.

Traders usually work with two or more Moving Averages in the charts, but there are also strategies with one single Moving Average.

The reason why traders want to have two Moving Averages is related to their sensitivity and their tendency to get closer between each-other after they get far from each other.

Many trading strategies relate to the crossover of these Moving Averages or the distance between each other.

Overbought and Oversold with moving averages

The most popular Moving Average lengths are 10, 20, 30, 50, 100 and 200 however, if you have watched any of my technical analyses, you may have noticed that I also use 8, 13, 21, 34, 55, and 233 which are…

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Popular types of moving averages

  • Traders from all over the world use several Moving Averages to make their market analyses.
  • A short SMA, is used as an indicator for short periods.
  • The smaller the number, the quicker the Moving Average.
  • Many trading strategies relate to the crossover of Moving Averages or the distance between each other.

The fibonacci variation

These are alternative lengths that you may want to use and experiment with per security so that you can see which ones provide you with a better result.

These weird numbers are not random; in fact, they are part of the Fibonacci sequence.

These numbers deserve an article on its own, but they seem to appear and recur in everything in nature, probably in the whole universe.

They are determined by a ratio, but to simplify things, a Fibonacci sequence can be calculated by adding 1 to 1, then the sum of these two numbers, being 2; added to the previous number in the sequence, which is 1, meaning 3; then adding 3 to the previous number in the sequence, which is 2, giving 5; and I think you got the idea.

In fact, the next number in the sequence would be 8 (5 + 3) and so on and so forth.

Fibonacci was an Italian mathematician.

I invite you to search ‘Fibonacci’ in your search engine to find out lots of exciting images. Fibonacci numbers also recur in music; it seems to appeal to us on everything available in the universe.

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The fibonacci variation

  • The Fibonacci Variation are alternative lengths.
  • They are determined by a ratio.
  • Fibonacci was an Italian mathematician.

EMA vs SMA

Even if every trader has a preferred strategy that may involve both type Moving Averages or just one type (like me), there is no real right or wrong choice as they can be useful according to the market, the timeframe and the strategy of your heart’s content.

As a general rule, we can notice that the Exponential Moving Average, because it provides more weight to the most recent candles; is by nature more sensible and therefore, is not as smooth or as a simple moving average could be.

You can find an example on Apple, with both Moving Averages being set to 8, and the simple Moving Average (the orange one) is not as sensible as the cyan one, which is the 8 EMA.

The Exponential Moving Average responded to the peak and the fall, while the Simple Moving Average, just skipped it.

EMA vs SMA

In my inner circle, I show strategies to be used along with my candle scanner… you may want to join the tribe of promising traders, as it is absolutely free and will put you in touch with likeminded people; help you avoid many rookie mistakes, hence saving money, and share knowledge on how to create wealth with the consequence of achieving your financial goals.

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EMA vs SMA

  • The Fibonacci Variation are alternative lengths.
  • They are determined by a ratio.
  • Fibonacci was an Italian mathematician.

Simple EMA crossover strategy

And here we have the strategy!

This is the most straightforward strategy that you can find and requires only one Moving Average. However, because with TradingView and a free account, you can have up to two (if you use them combined with the Official PromisingTrader candle scanner).

I would recommend using two, specifically the 233 (or 200) EMA and the 55 (or 50) EMA so that you can also have a long-term trend confirmation, which should grant you more probabilities to succeed.

In straightforward words, you want to enter a trade whenever a candle closes crossing the 55EMA and either buying or selling according to the direction of the candle. Where if the candle is red, crosses, and closes below the 55EMA you would sell (short the market); or if it is green, crosses, and closes above the 55EMA, you would buy, or go long.

You will also need to set a stop loss, at the opposite side of the same candle, so if the candle is red you want to use it to the top of the candle; and if the candle is green, you want to use it to the bottom of the candle.

How to set a stop loss is explained in the video provided with the candle scanner, and it is the maximum loss that you are willing to take on a trade if things do not go as you expected.

As I was mentioning, I have elaborated this strategy a little bit from the original swing trading strategy and have combined it with the 233EMA however; you can choose to merely use the original strategy with only the 55EMA or both 55 and 233 as I describe below.

The purpose of using two Moving Averages consists of giving you an idea of the current trend of the market as you do not want to trade against the trend.

To find the trend it is very easy as you can see the candles, whether they are going up or down (in multiple timeframes), and the Moving Averages will be able to let you know as if the price is below all the Moving Averages it means that the trend is down; while if it is above, the trend is up.

Also, the order of the Moving Averages will give you a hint on whether the trend has confirmed to be down or up. In fact, for a downtrend, you want to have the 233 Moving Average above the 55 and vice-versa for a bull (positive) trend.

The strategy consists in finding what side of the 233EMA the price is and where the 55EMA is compared to both price and 233EMA.

Ideally, you want to do this on a 4 hour or 6 hour timeframe as these usually give big enough moves, hence profits.

For shorting the market, you want the 233EMA to be above everything (both price and 55EMA) as this indicates an already bear market, like in this example of Ethereum/US Dollar where the price of Ethereum was approaching the 233EMA (the dark red line), crossing the 55EMA (the green line).

Simple Moving Average Strategy Part 1

Because both the 55EMA and the price were below the 233EMA, we have confirmation that this is still a bear market (checking more timeframes and having consistent evidence that the trend is bearish is a good idea as it increases your probabilities of success).

Because this is a bear market, we should wait till the price crosses down the 55EMA for confirmation as otherwise, we would not enter the short position that we are looking for as the market may be in the process to invert the trend. Remember, the price must be below both Moving Averages to confirm a bear trend.

Please, bear in mind that this is a straightforward strategy and does not apply to every situation, so you want to wait for all the events to be aligned before placing your order.

Because the strategy consists in placing the order as soon as the candle closes below the 55EMA and placing a stop loss at the top (a few ticks above) of the 55EMA, you also need to ensure that the price does not drop a lot below the 55EMA otherwise your risk-reward may already be compromised.

Remember, you always want to risk less than what you foresee to win (otherwise it is gambling and no longer a trading business). Usually, the ratio is risk 1 to 3, which in percentages translates in 5% risk of your capital for a 15% profit.

This strategy consists in finding the ideal situation (if you use TradingView’s alerts, it is much simpler) and in this case, it means waiting a few 6 hours periods, hence days.

Simple EMA Trading Strategy Part 2 - setting the alert

Because both the 55EMA and the price were below the 233EMA, we have confirmation that this is still a bear market (checking more timeframes and having consistent evidence that the trend is bearish is a good idea as it increases your probabilities of success).

Because this is a bear market, we should wait till the price crosses down the 55EMA for confirmation as otherwise, we would not enter the short position that we are looking for as the market may be in the process to invert the trend. Remember, the price must be below both Moving Averages to confirm a bear trend.

Please, bear in mind that this is a straightforward strategy and does not apply to every situation, so you want to wait for all the events to be aligned before placing your order.

Because the strategy consists in placing the order as soon as the candle closes below the 55EMA and placing a stop loss at the top (a few ticks above) of the 55EMA, you also need to ensure that the price does not drop a lot below the 55EMA otherwise your risk-reward may already be compromised.

Remember, you always want to risk less than what you foresee to win (otherwise it is gambling and no longer a trading business). Usually, the ratio is risk 1 to 3, which in percentages translates in 5% risk of your capital for a 15% profit.

This strategy consists in finding the ideal situation (if you use TradingView’s alerts, it is much simpler) and in this case, it means waiting a few 6 hours periods, hence days.

Simple EMA Trading Strategy - Patience is key!

In the image above you may be thinking that the moment to enter the trade has arrived, but this is not validated by the strategy as the candle only pierced the 55EMA, but we need it to CLOSE. Not only to pierce it as the risk of a reversal of the trend is high; as long as we do not at least have some confirmations of the trend (which you can have with the candle scanner and if you have watched the previous tutorial).

So, we must wait a little longer…

Simple EMA Trading Strategy Part 5

In this case, you have confirmation. However, this candle has a very long side above the 55EMA; therefore, you may decide that you would not be willing to risk having a 3% loss (that is very subjective) if this candle goes back up, but at this point it is up to you. This is not an incredibly long candle, for the sake of this example we would wait.

In this case, we have half as much of a risk and the hanging man, combined with two candles closing below the 55EMA, is also a stronger confirmation:

Simple EMA Trading Strategy Better confirmation

So, you place a short order (only paper trading, I will never tell you what to do with your real money!) at candle closure (or a few moments before it closes at $224.1 and patiently wait until a reversal signal, which in this case was provided by the Piercing Pattern.

Your profit for this trade was 17%.

Simple EMA Trading Strategy - Final profit

If you want to know how to do paper trading, I explain it along with the instructions to install the candle scanner, and with that, I will give you unique strategies that I am not willing to share publicly, such as successful exit strategies.

I wish you success with this strategy but bear in mind that there is continuously some randomness in these things and that despite all your efforts to be right, many factors may change the trend and have the market against you.

It is essential to be disciplined and follow your set of rules religiously and change them if they do not work. This is a marathon it is not a sprint, and you are here to win on a global perspective and realistically expect losses here and there. Everything will work fine as long as you keep your ratio 3 to 1 as explained above!

You have all my support, and if you want more strategies you can join the Promising Traders Tribe here!

In the next lesson, we will discuss MACD.

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Simple EMA crossover strategy

  • Requires only one Moving Average.
  • With TradingView and a free account, you can have up to two.
  • Enter a trade whenever a candle closes crossing the 55EMA and either buying or selling according to the direction of the candle.
  • Set a stop loss, at the opposite side of the same candle.
  • Using two Moving Averages consists of giving you an idea of the current trend of the market.
  • It is essential to be disciplined and follow your set of rules religiously and change them if they do not work.
Alex Promising Trader

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