Exponential Moving Averages to Predict the Stock Market
I will like you to read the post to the end because the previous trading sessions of trading reflects unstable times and I will like to give you confidence as you trade in these times.
Let me jump into moving averages (MA) in this time of uncertainty. Markets are up 500 points, down 500 points, up 1000 points and down 1000 points. This is for those who trade with technical analysis which is a time tested trend principle method of trading the market.
In times of turbulence, the technical analysis tools tell us what to do, we are ahead of the volatility by using the tools especially in these times.
Moving Averages is the trend’s best friend forever as they are used to smooth out the trend and make it easier to see the big picture by making bare the predominant and current trend. The moving average can be used as a short cut in identifying the trend.
10 period moving average, 20-period moving average and 50-period moving average.
You can set up your moving averages from the indicator settings in the same way as I have listed above.
As the trend is moving up and down the line smoothens the trend by moving behind to smooth out the process. Few traders use solely the moving averages to trade.
The above are called Exponential Moving Averages (EMA) which I usually use in trading and set at the 10, 20, and 50 period EMA to identify short or intermediate term trends.
Some traders use the Simple Moving Averages (SMA) but they can be useful in long term trends and do not react as quick as the Exponential Moving Averages. All three EMAs can be used at the same time on the chart and used together.
The signs predicted by the EMAs are different hence why it is used together.
How to Use EMAs
Let me illustrate here that EMAs can be used for trend direction, as a Buy or Sell signal and as a support and Resistance which we discussed in a previous post and can be found here. It is as simple as mentioned.
For the trend direction, simply ask yourself if you are above or below the moving averages.
When the candlesticks are above the moving averages it means the trade is in a bullish trend, when the candlesticks are below the moving averages it means the trade is in a bearish trend and when the candlesticks are stuck in the middle or on the moving averages it is a neutral trade or called a sideways market.
Learn to notice the crosses of the moving averages in your trade chart.
When the moving averages crosses it depicts an opportunity, ideally all 3 moving averages crossing tells the trend is reversing and this is either a buy or sell signal.
A moving average crossing upwards signals a bullish trend and when moving averages cross downwards signals a bearish trend.
It is useful for a support and resistance when the candlestick trades up the moving averages is a resistance and down to moving averages is a support.
The EMAs can be used to trade fully without any other tool.
Examples of Moving Averages
APPLE – AAPL
See the Apple stock for example.
KITS
KITS is my acronym for Keep it Trade Simple. I have seen many Traders paste too many confusing indicators on the chart, loads of lines and it all becomes confusing. When you Keep it Trade Simple you cannot get it massively wrong.
How do you KITS? Play all your trade using a trade journal with a simple process I have used, simply analyse your trade, then choose a strategy, write down the plan such as your entry point, stop loss and a target; then measure against your plan – did you follow the plan or did your emotions get in the way and do I make any adjustment.
Next steps
I know the trading sessions have not been looking good and you may have lost some money but remember, they are all opportunities to enter into the market awaiting the next bullish or bearish run.
Trade the trend because the best days are still ahead
Let us stay calm and be prepared. Don’t forget to journal your trades
See you soon.
Let me jump into moving averages (MA) in this time of uncertainty. Markets are up 500 points, down 500 points, up 1000 points and down 1000 points. This is for those who trade with technical analysis which is a time tested trend principle method of trading the market.
In times of turbulence, the technical analysis tools tell us what to do, we are ahead of the volatility by using the tools especially in these times.
Moving Averages is the trend’s best friend forever as they are used to smooth out the trend and make it easier to see the big picture by making bare the predominant and current trend. The moving average can be used as a short cut in identifying the trend.
10 period moving average, 20-period moving average and 50-period moving average.
You can set up your moving averages from the indicator settings in the same way as I have listed above.
As the trend is moving up and down the line smoothens the trend by moving behind to smooth out the process. Few traders use solely the moving averages to trade.
The above are called Exponential Moving Averages (EMA) which I usually use in trading and set at the 10, 20, and 50 period EMA to identify short or intermediate term trends.
Some traders use the Simple Moving Averages (SMA) but they can be useful in long term trends and do not react as quick as the Exponential Moving Averages. All three EMAs can be used at the same time on the chart and used together.
The signs predicted by the EMAs are different hence why it is used together.
How to Use EMAs
Let me illustrate here that EMAs can be used for trend direction, as a Buy or Sell signal and as a support and Resistance which we discussed in a previous post and can be found here. It is as simple as mentioned.
For the trend direction, simply ask yourself if you are above or below the moving averages.
When the candlesticks are above the moving averages it means the trade is in a bullish trend, when the candlesticks are below the moving averages it means the trade is in a bearish trend and when the candlesticks are stuck in the middle or on the moving averages it is a neutral trade or called a sideways market.
Learn to notice the crosses of the moving averages in your trade chart.
When the moving averages crosses it depicts an opportunity, ideally all 3 moving averages crossing tells the trend is reversing and this is either a buy or sell signal.
A moving average crossing upwards signals a bullish trend and when moving averages cross downwards signals a bearish trend.
It is useful for a support and resistance when the candlestick trades up the moving averages is a resistance and down to moving averages is a support.
The EMAs can be used to trade fully without any other tool.
Examples of Moving Averages
APPLE – AAPL
See the Apple stock for example.
KITS
KITS is my acronym for Keep it Trade Simple. I have seen many Traders paste too many confusing indicators on the chart, loads of lines and it all becomes confusing. When you Keep it Trade Simple you cannot get it massively wrong.
How do you KITS? Play all your trade using a trade journal with a simple process I have used, simply analyse your trade, then choose a strategy, write down the plan such as your entry point, stop loss and a target; then measure against your plan – did you follow the plan or did your emotions get in the way and do I make any adjustment.
Next steps
I know the trading sessions have not been looking good and you may have lost some money but remember, they are all opportunities to enter into the market awaiting the next bullish or bearish run.
Trade the trend because the best days are still ahead
Let us stay calm and be prepared. Don’t forget to journal your trades
See you soon.
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