Can someone please explain a moving average for an active day trader? what moving average could be used?

Question

I'd like to know what is the best moving average to use for a day trader? also how to use that stock chart once a stock is picked out, when do I know is the best time to buy or sell during the day??

Answer 1

In day-trading, if the market don´t have trend, it´s not good to use moving average, because this is an indicator for markets in trend.

In my blog: http://www.estadisticabursatil.elnuevopa...  I have used frecuently MMA 18, 30, 70 and 200. In day trading is important to see the tren and the movement of a combination of short / long MMA is the best for this.

Answer 2

The Irish Contrarian has defined moving averages very well, so I will not repeat that here. Instead, I will explain to you how to make money trading with moving averages.

Some people use one moving average, others use a combination of these.

If you use one moving average, try the 8period simple moving average. When price closes above the 8SMA, you open a long position. You then place a stop 1 tick below the low of that candle, then trail that stop up as price goes up.

Consequently, when price closes below the 8SMA, you open a short position. You then place a stop 1 tick above the high of that candle, then trail that stop down as price goes down.

Trading with one moving average can cause a lot of whipsaws, so other traders trade with 2 moving averages. Trading with 8SMA, I find the 50EMA as a good complement moving average. If you put these two moving averages over a chart, you will be able to define good entry and exit points.

Still another way of trading with MA's is using three. I sometimes add a 200EMA with the above mentioned MA's, but, if you looked at any chart with these three MA's, you will find that their entry and exit signals will be different.

Google "trading with moving averages" to find more information on this. FInd one that will suit your trading methods.

Hope this helps.

- Jim http://jsforex.blogspot.com

Answer 3

A moving average takes a number of observations and averages them to come up with a single data point. Then, when a new data point is available, it drops the oldest data point and replaces it with the new one. Example: Assuming no holidays, Friday's January 5th's 5-day moving average for the S+P 500 Index was the average of the Index's closing price on the 5 trading days from Monday January 1 - Friday January 5. On the next trading day, Monday January 8, the 5-day moving average was the average of the 5 trading days from Tuesday January 2 through Monday January 8.

Moving averages can be important technical signals. I've seen 10-day moving averages used frequently as well as 30-day, 50-day and 200-day moving averages. Often, investors will watch for one moving average line (like the 50-day moving average) to cross through another moving average line (like the 200-day moving average), in the belief that once a moving average trend has changed in this way, it signals a new direction for a stock.

Sometimes, an investor will vary the moving average horizons a bit in order to try to be ahead of the crowd. Instead of using the 50-day moving average, he might use a 48-day moving average. In this way, a signal might be seen a bit sooner, getting the trader into a new position or out of a risky situation sooner.

In very liquid instruments, day traders will sometimes use intraday moving averages like 10-minute moving averages to watch a day's trading in a bit more smoothed-out way. Again, they are often looking for places where trends are changing.

Play around with different moving averages and watch how stocks trade as the lines approach, bounce off and go through - it'll be useful to you as you develp your own trading systems.  

Good luck -