What is Moving Average and How to Trade Them

Moving average is a very flexible term and is commonly utilized in technical indicators. They are also known as one of trading tools that are most commonly used. This may be due to the reason that they are simple to experiment with and calculate. It is also often utilized in determining the trends and reversals in the market.

You may get the gist of what moving average means just by the second word. It refers to the average of a specific group of data or information. The ‘moving’ word would mean that the average is computed and constantly changing on a timely basis.

It is great when the trader using it also knows how to efficiently use it. However, there are still instances when they make a wrong move when it comes to moving averages. This is why we will be helping you to get a better grasp as to what is moving averages and how to use them.

Common ways moving average is used:

First, they are often used for mean reversion trading strategies. There are instances that stocks would embrace the moving averages they have in the long run, the mean reversion traders will then try to search up for stocks that have reached above or below the moving averages they have. They would then set out trades that would profit if only they would go back to their previous lines in time.

Second, we can see traders using moving averages as probable support and resistance levels in the market. This is because stocks that are currently in an uptrend would find the need to rely on the major moving averages, such as those 50-day simple moving averages. The usual scene in the market is that traders would usually purchase stocks during an uptrend as they approach major moving averages from the under.

A different way traders would use moving averages is through trading signals. For instance, the 50-day simple moving average passes over the 200-day moving average; it is often a clue that is termed as the “golden cross” in the market. But if the opposite happens, meaning the 50-day goes below, it is often termed as the “death cross.”  One thing you should take note of is that moving averages cross over do not work well in the ranging markets. When the value bounces up and down between support and resistance, you can often see that the moving average is situated around the middle of the values.


A moving average helps keep the price data stand in more simplified terms, aiding to create this one flowing line in the charts which makes the trend much easier to see in the charts. It may seem to you that moving averages are predictive, since they are grounded on the basis of the historical data and they simply display you a picture of the average on a specific time frame.

Overall the moving average is one of the most commonly used indicator but it is still very effective in what it does.

Day Trading Strategies for Beginners

Strategies in Day Trading are important if you would want to take advantage and earn from the multiple small movements of the price in the market. A comprehensive analysis in a technical sense, the usage of charts, the various indicators to help see the movements of price in the future, would be the foundation if you desire a constant and effective strategy that you can use in the market.

Fundamentals of Day Trading

It is always best to start at the basics as to what day trading really is and to better understand the following concepts it would entail. A lot of people would think that the more complex the strategy is, the more it would prosper in the market. However, that is not always the case. You should keep in mind that the gist of the strategy should be emphasized in a more straight-to-the point manner for it to be effective and robust. A complex strategy would have you looking at way too many indicators and leave you hesitant to make a decision.

Make sure to at least involve the following elements into your strategies,

  • Managing your finances

-As a trader, you should be aware that often in the market, the most prosperous traders know themselves that they should not place over 2% of the capital they have for every trade. This is why, if you are having doubts, you should choose to what extent you are willing to put on the line. Risk management is of utmost importance if you are going to be placing a lot of trades in a day, which you will be as a day trader.

  • Allotting your time

-if you are still starting, it is better to exercise your mind and keep a good mind-set. If you want to succeed in this arena, it is important to allot your time in trading- and by time, not just an hour or two. You would have to persistently check the market especially for any opportunities that may arise. The market could move very quickly in shorter time frames and you have to be ready to react to them.

  • Begin at a small-scale

-For starters, it would be advisable to go with a maximum of 3 stocks a day. It’s better to take it slowly and surely especially when you are still exploring the world of trading. Once you start seeing consistent returns, that is the time that you can consider scaling up and take it to the next level. Until then it is better to be prudent.

  • Train/Educate yourself

-In the world of trading, it is important to be on track and to be updated with the trend. It is not enough to just be able to comprehend the complexities of the market since it is often changing so as with trading. Even the best traders who rely on market events to trade will still be on the lookout for important market announcements such as company earnings, Fed policy meeting, economic events etc.

  • Mindset

-How you perceive something greatly affects how you perform as well. It is best to consider that you need to think logically and strategize efficiently when it comes to market as it involves prices and money. You should not let your feelings or avarice consume you. Your strategies are only good when they are followed and having a strong mindset will allow you to stick to it.

  • Your choice and timing

-As I’ve mentioned before, the market is always changing. There are times when it is predictable and times wherein it unexpectedly goes the opposite.  Together with the other elements, it is important to know that you still got a number of hours ahead of you, and holding back for a few minutes would not hurt. When in doubt, it can be better not to enter the market at all and just watch safely from a sideline to see how it plays out before making an informed decision.

The different Day Trading Strategies:

  1. Scalping

­­-It is a one of the most popular strategies wherein it is grounded on the quantity- having to check out to sell once you think the trade can be profited. It happens fast but entails risks as well. You will be entering in and out of trades much quicker than other strategies and although the profits earned per trade might not be as impressive as other methods, multiple profits quickly add up over time.

  • Momentum

-it is a method used by traders wherein they would be basing on the strength of the latest price trends. This strategy would require you to be updated with the upcoming news as even a few seconds or minutes could greatly affect the profit you’d be earning. This method yields serious potential if you are able to catch a strong trend and ride it to the top.

  • Breakout

-This strategy focuses on instruments that are breaking out of their previous price action. There are multiple chart patterns that this works on such as head and shoulder, cup and handle and much more that once there is a breakout, there is a strong price movement with high volume. To ascertain whether the breakout is real or a fake out, check the volume accompanying it. If there is strong volume behind the movement and it is increasing on each candle, it is likely a real break out.

  • Reversal

­-This strategy is quite risky as it is a contrarian strategy and you would be riding against the current trend. There are several categories of reversal, some easier to pull off than others. One of the categories are popular reversal chart patterns such as double bottom and rising wedge. There are also certain indicators that can signal potential reversal in price movements such as the relative strength index (RSI) which shows whether a stock is overbought or oversold. Typically the reversal strategy offers higher risk but also higher reward as you are able to enter at the very beginning of the new trend if the price reverses.

  • Pivot Points

Pivot points are usually to identify the bigger picture of the trend at different time scales. Traders could utilize it to know the possible entry points in the market. The points could also be used as support and resistance as they are formed over important price levels.

It cannot be denied that Day trading is challenging to learn. It requires you the mindset, the proper investment of time, and experience. But with enough practice as you explore the world of trading, you would be able to discover various ways to go about it. It can be an incredibly lucrative opportunity once you get a hang of it.