How Do You Choose a Stock Indices Moving Average to Trade With?
A Stock Index trader can choose a moving average based on the Stock Indices trading chart time frame that he is trading; the Stock Indices trader might choose to use this Moving Average indicator on the minute Stock Indices trading charts, hourly Stock Index trading charts, day Stock Index trading charts or even weekly Stock Index trading charts.
The Stock Indices trader can also choose to average the closing price, opening price or median price.
Moving average Stock Indices indicator is a commonly used indicator to measure strength of Stock Index trends. The data is precise and its output as a moving line can be customized to a Stock Indices trader's preferences.
Using the Stock Indices moving average is one of the basic ways to generate Stock Indices buy & sell trading signals which are used to trade in the direction of the market trend, since the Moving Average indicator is a lagging indicator & a trend following indicator - this means that it will tend to give late Stock Indices entry signals as opposed to leading Stock Index indicators. However, as a lagging Stock Index indicator it gives more accurate Stock Indices trading signals and is less prone to whipsaws compared to leading Stock Index indicators.
Stock Index Traders choose the moving average period to use depending on the type of Stock Index trading they do: short-term Stock Indices trading, medium-term Stock Indices trading & long-term Stock Indices trading.
- Short-term Stock Indices trading: 10 -50 MA Period
- Medium-term Stock Indices trading: 50 - MA 100 Period
- Long-term Stock Indices trading: 100 - MA 200 Period
The Stock Indices price period in this case can be measured in minute Stock Indices trading charts, hourly Stock Index trading charts, day Stock Index trading charts or even weekly Stock Index trading charts. For our example we will use 1 hour Indices trading chart time frame period.
Short term Stock Indices moving averages are sensitive to Indices price action and can spot Stock Index trends signals faster than the long term moving averages. Shorter term Stock Indices moving averages are also more prone to whipsaws compared to long term moving averages and a trader should choose a Stock Indices price period that will generate a Stock Indices trading signal early but not give too many Stock Index trading whipsaws.
Long term Stock Indices moving averages help avoid Stock Indices whipsaws, but are slower in spotting new Stock Index trends and Stock Indices trend reversals.
Because long term moving averages calculate the average using more Stock Indices price data, it does not reverse as fast as a short term Stock Indices moving average and it's slow to catch the changes in the Stock Indices trend. However, longer term Stock Indices moving average is better when the Stock Indices trend stays in force for a longer time but might also give late trading signals.
The work of a trader is to find a moving average period that will identify Stock Index trends as early as possible while at the same time avoiding fake-out signals (Stock Index trading whipsaws).
