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Best Moving Averages for Day Trading [Tips & Strategies]

Best Moving Averages for Day Trading [Tips & Strategies]

Today, we will share with you the best moving averages for day trading. You know that day trading is a fast-paced game. Where you can get up in a jiffy and then soon forgo all your profits. Here the key to success is to keep the trading method simple. Moving average is the simplest and single indicator used in day trading.

Knowing the best moving averages for day trading will help you understand the movement of trading. You’ll see when a stock is trading and when the situation turns worse. Moving average is a better way to evaluate the trend when analyzing the market.

Trading with moving averages is better if you know how to do it properly. At this point, some traders make some fatal mistakes. Most of them are unaware of the length and size of the perfect moving average. However, it is essential to know for effective trading.

In this article, we’ll tell you about moving averages, their types, and calculations. Also, we’ll let you know how to use moving averages to enter and exit trades. So you can identify the directions of a trend.

What are Moving Averages?

Moving averages are the most common trading tool used to make trading decisions. It’s a statistic that eventually captures the average change in a data series. Moving averages are the foundation of countless technical indicators like MACD, Bollinger Bands, Envelops, ADX, etc.

Usually, moving averages are calculated to identify the trend direction of stocks. Also, to determine the support and resistance levels of a trend. It can also be said a trend-lagging indicator since it depends on past prices.

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Calculating a stock’s moving average helps to level the price data by generating a continually-updated average price. Averaging price variations do this to a single line that declines and flows with them.

So, what happens by calculating the moving average? The impression of short-term price variations of a stock over a specific time frame is lessened. However, moving average is simple to understand, clean, and to the point.

The moving average will follow the trend if the price moves in a particular direction over the “X” period. Moving averages doesn’t let you perform additional analysis, which is suitable for day trading.

It is essential to make quick decisions without performing manual calculations in day trading. The reason is that it can make differences between winning or losing money.

Best Moving Averages for Day Trading [Tips & Strategies]

Different Types of Moving Averages

If you want to understand those moving averages for day trading, you must know the different types of moving averages. It will help you to take your forex trading journey to a whole new level.

Moving averages plan an asset’s average price in a given period. There are many types of moving averages. Choosing the right type adds consistency to your technical day trading strategies.

On the other hand, poor setting moving average destabilizes profitable methods. Hence it is essential to understand each type.

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Simple Moving Average (SMA)

SMA is the simplest moving average in forex analysis. It is the basic average of price over a specific timeframe. However, SMA calculates an asset’s average price by the number of periods in that particular timeframe.

An SMA is calculated by adding closing prices of the “X” period and dividing that by “X.” Generally, the trading weeks have only 5 days. So it cannot cancel the likelihood of changing the period settings.

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Exceptional Moving Average (EMA)

The EMA prioritizes the recent prices and thus, removes the lag in simple moving averages. Trading EMAs holds multiplying factors that add more weight to recent data points than previous data points.

Thus, EMA reacts faster when the price changes its direction. It gives a trader an early signal about an SMA. However, this also means the EMA is more vulnerable to situations when a wrong signal comes too early.

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Weighted Moving Average (WMA)

The WMA gives a superior weighting to the recent data points and fewer weighting to the prior data points. It removes the lag by ignoring the weight of the earliest prices of an asset.

The WMA is calculated by multiplying all the numbers in a data set by a preset weight. Then, the resulting values are summed to obtain WMAs.

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Smoothed Moving Average (SMA)

The SMA is a kind of exceptional moving average but with a more extended period. Basically, it’s a smooth version of EMA. It gives the recent prices an equivalent weighting to the notable ones.

The SMA uses a more extended period to determine the average and removes the lag. Moreover, the SMA is calculated by assigning weight to the price.

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Double Exceptional Moving Average (DEMA)

DEMA is a combination of smoothed moving average and traditional EMA. The DEMA’s reaction to market price is much faster than the EMA. It means DEMA responds faster to near-term price changes than a normal EMA.

The DEMA is smoothed twice, and hence it contains less information. It can be used as other moving averages if the trader understands DEMA will react quicker. Moreover, DEMA contains less lag which is not good as lag filters out noises.

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Triple Exceptional Moving Average (TEMA)

TEMA is the next stage of DEMA. It is basically a combination of smoothed version of EMA and smoothed version of that subsequent EMA. The TEMA uses several EMA calculations. Thus, it subtracts the lag to generate an indicator that reacts faster to the price changes.

Best Moving Averages for Day Trading [Tips & Strategies]

Best Moving Averages for Day Trading

There is an infinite number of moving averages used in day trading. How do you know which one is the best with so many options like simple, exceptional, and weighted? Since you are looking for answers, here we disclose a secret.

10-period SMA is the best moving average for day trading breakouts in the morning. Why?

Simple, you will want to use a shorter period of moving average while you are day trading breakouts in the morning. The breakouts will likely fail, so you need to track the price closely. Moreover, the 10-period SMA is undoubtedly the most popular MA period.

The next one that takes second place is the 20-period. But, there is an issue with the 20-period. The 20-period moving average is too large for day trading breakouts. However, 9 EMA is one of the best moving averages in day trading forex. It is also called the “ride the 9” strategy.

Some traders claim it as the best MA for entry and exit for day trading. With this strategy, you can trade stocks, futures, options, and Forex.

Examples:

  • The best moving average for the daily chart – The 20 EMA is the best MA for daily charts as the price follows it precisely during a trend.
  • The best moving average for 1 min chart – The 7 SMA or 14 SMA will possibly be more beneficial for smaller time frames like 1-minute charts.
  • The best moving average for 10 min charts – Slightly longer-term MA would be best for 10-minute charts because of better accuracy.
  • The best moving average for 15 min charts – The 20 EMA is the best MA to use in the 15-minute charts.
  • The best moving average for 1-hour chart – The 10-day moving average is often plotted on a 1-hour chart to guide traders on intraday trading.
  • The best moving average for 4-hour chart – In the trading strategy, 50 and 200 periods EMA is used in 4-hour charts.

How to Use Moving Averages for Day Trading?

The moving averages can be used by taking the line of MA as a support and resistance signal. Let’s say the price of an asset keeps below the MA, and suddenly, it rises and touches the MA line. Then it can be considered as a possible sell signal.

Similarly, the price is keeping above the MA. If it drops below the MA line, then it can be considered as a buy signal. It implies the moving average can be used as buy and sell signals in day trading.

FAQ

1. Which EMA Should I Use for Day Trading?

The 8 and 20-day exceptional moving averages are possibly the popular timeframes for day trading. Also, some suggest 5 and 13-bar simple moving averages as the perfect inputs for day traders.

2. What is the Best Moving Average to Use?

In stock trading, the 200-day moving average is best to use. However, in long-term day trading scenarios, 50-day or 100-day MAs would be the better choice. The 21-period is the most accurate moving average for medium-term strategies.

3. What is MACD Strategy?

The MACD is a price indicator used in forex and day trading. It is designed to measure the difference between two EMAs and plans it as a line chart.

4. What is the Best MACD Setting for Day Trading?

The best MACD setting for day trading is 5, 13, 1. Using this pattern helps to accomplish a visual representation of the MACD pattern. You can use this pattern in various trading systems and strategies.

5. Which is Better, EMA or SMA?

The differences between EMA and SMA are basically subtle. Both are equally significant in day trading. EMA provides more weight to recent data, while SMA calculates the average price data. EMA gives higher weighting to current prices, while SMA gives equal weighting to all values. The only difference between EMA and SMA is its speed.

Summing Up!

Undoubtedly, moving averages work best in trend-following systems. If used properly, you can get an insight into the trend’s direction, its rate of change, and its extent. Before that, you need to find the best moving averages for day trading that works for you.

Each trader trades in their own way with different strategies. That’s why different people use different moving averages. So any moving averages would be best if it works for you. We hope now you have everything to boost your trading journey using the best moving averages for day trading.

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