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How to use moving averages to enter trades

by , 14 October 2015

Moving averages are very handy. They can show you what the overall trend is. And they can show you levels of resistance and support.

By smoothing out price activity, they produce a much easier to read line than looking at the price alone.

So how can you use moving averages to know when to enter trades?

Read on to find out…


Which moving averages you should use together


If you’re looking to check the overall trend or where levels of support and resistance are, a single moving average is fine.

But when you want to find out when to enter a trade, you should use two moving averages together. These signals work for either long trades or short trades.

The question is, which moving averages should you use together when trading the stock market?

Well it all depends on what you’re trading.

You need to play about with different moving averages to see what generates the best signals. You need to use a shorter-term moving average along with a longer-term moving average.

But there are some moving averages that tend to work well together. Popular moving averages traders use together include:

  • The 10 day moving average and the 30 day moving average;
  • The 15 day moving average and the 25 day moving average;
  • The 50 day moving average and the 100 day moving average; or
  • The 50 day moving average and the 200 day moving average.

Play about with the timeframes you trade using different pairings of moving averages and you should be able to find which ones work best together for the assets you trade.


Generating entry signals from moving averages


If you’re looking for a buy signal for a long trade, this happens when the shorter-term moving average crosses above the longer-term moving average.

If you’re looking for a sell signal for a short trade, this happens when the shorter-term moving average crosses below the longer-term moving average.

Set your stop losses at the level the shorter-term moving average would retrace and cross back over the longer-term moving average.

So there you have it. How to use moving averages to enter trades.

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How to use moving averages to enter trades
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