When price is above a moving average, it signals an uptrend. Other traders would keep the position open until around 11h05 (second black arrow) when the first candle closes above the slower 13-period SMA (blue). These large-cap stocks (greater than 300M) have a 20-day moving average greater than the 50-day moving average, and a 50-day moving average greater than the 100-day moving average. Some traders may want to close their position when the candle closes above the 5-period SMA (red) or the 8-period SMA (green). This rebound lasts for about 15 minutes as indicated by the yellow zone in the chart. Within 30 minutes the market has dropped significantly and the short position is showing a profit.Īt around 9h45 the situation changes when the market changes direction. A short sell signal appears (first black arrow) when the first candle closes above the three SMAs. ![]() The situation changes at 9h00 when the market starts to go down. Once again we see the three SMAs running in parallel at the start of the day, indicating a lack of momentum. USD/CHF, 5-MINUTE CHART, SHORT SELL SIGNAL At this point all day traders should close out their positions. It takes until 10h25 before a first candle closes below the slower 13-period SMA (blue) (second black arrow). The trader can close his position when the first candle closes below the 5-period SMA (red) or the 8-period SMA (green). Two exit possibilities present themselves. Around 10h00 the market’s momentum dies down as indicated by the SMAs moving closer to each other again. From this point onwards, the market gains momentum, as indicated by the increasing distance between the different SMAs. ![]() This can be interpreted as a clear buy signal. This is indicated by the three SMA running parallel and pointing downwards.Īfter 8h00 buyers start to outweigh sellers, resulting in clear bullish green candles crossing all three SMAs (first black arrow). Let’s have a look at some practical examples on the forex pair USD/CHF.Īt the start of the day the market is moving sideways and slightly downwards. ![]() Although the concept is not complicated, it will require the trader some training to correctly interpret the dynamics of the different moving averages. Ideally the setup is done in a 5-minute chart, but scalpers could use a faster 1-minute chart. The concept is based on the famous Fibonacci theory, a theory that reoccurs in many different forms in trading. When setting up a system based on three moving averages, the day trader and scalper could use a 5-periods, 8-periods and 15-periods simple moving averages (SMA) combination. In this article, we’ve seen a simple algorithm to find the best Simple Moving Average for stock and ETF trading. For day traders and scalpers there are plenty of strategies available, going from a very simple crossover of two or three moving averages to setting a whole range of different moving averages (Rainbow Scalping).ĭownload a free real-time demo of the NanoTrader Full trading platform The objective is not to discuss or compare the different types of moving averages and their respective merits, but to take a closer look at their parameters and how the trader should set these in order to optimise trading results. This series of articles focuses on public domain day trading strategies which include moving averages.
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