20 Period Moving Average Strategy
A indices trader can choose a moving average to trade with based on the stock indices chart timeframe that they use for trading; a indices trader might choose the moving average to trade 1 minute chart, 1 hour indices chart, 4 hour indices chart, day indices chart or even weekly indices chart.
A indices trader can also choose to average the closing indices price, opening stock indices price or median stock indices price - when choosing a indices moving average indicator.
Moving average indices indicator is oftenly used to measure strength of indices trends. The data of the moving average is precise & its output as a line can be customized to the preferences of a indices trader.
Using the moving average indices indicator is one of the basic indices strategies to generate buy and sell signals which are used to trade in the direction of the trend, since the moving average indicator is a lagging indicator and a indices trend following indicator. The Moving average stock indices indicator as a lagging indices indicator means that moving average will tend to give late indices signals as opposed to leading indices indicators. However, the Moving average indicator as a lagging indices indicator gives more accurate stock indices signals and is less prone to indices whipsaws compared to indices leading indicators.
Traders select the moving average period to use when trading with this moving average indices indicator depending on the type of indices trading style method they use: short term, medium term and long term.
- Short term indices trading: 20 Period Moving Average Strategy
- Medium term indices trading: 50 Period Moving Average Strategy
- Long term indices trading: 100 Period Moving Average Strategy
The period of the indices moving average in can be measured in 1 minute chart, 1 hour indices chart, 4 hour indices chart, day indices chart or even weekly indices chart. For our indices trading strategy example we will use 1 hour indices chart period.
Short term moving averages are sensitive to stock indices price action and can identify indices trend signals faster than the long term moving averages. Shorter term moving averages are also more prone to indices trading whipsaws compared to long term moving averages.
Long term moving averages help to avoid indices whipsaws, but are slower in identifying new indices trends and indices reversals.
Because long term moving averages calculate the average using more stock indices price data points, the long term moving average does not reverse as fast as a short term moving average and it is slow to catch the changes or reversals in the stock indices trend. However the longer term indices moving average is better when the indices trend stays in force for a longer time.
The task of a indices trader is to find a moving average period that will identify indices trends as early as possible while at the same time avoiding fake out signals -indices whipsaws. As a trader you will need to first test different indices moving average periods before deciding which indices moving average period is best suited for your trading style method based on the results of the testing that you will do using different moving averages.
Moving Average Period Strategy
Moving average indices indicator is a trend following indices indicator that is used by indices traders for three things:
- Identifying the beginning of a new indices trend
- Measure the sustainability of the new indices trend
- Identify the end of a indices trend & signal a indices trend reversal
The moving average indices indicator is used to smooth out the volatility of stock indices price action. The moving average indicator is an overlay indicator and it is superimposed on the stock indices price chart.
On the moving average indices example explained and illustrated below - the blue line represents a 20 period moving average, which acts to smooth out the volatility of the stock indices price action.
100 Period Moving Average Strategy - Moving Average Period Strategy - Indices Moving Average Strategy
Calculation of the Moving Average Indices Price Period
The moving average is calculated as an average of stock indices price using the most recent stock indices price data point -indices periods.
If a moving average uses the 20 period to calculate the moving average then it is referred to as a 20 period moving average, because most indices traders use the day indices chart as the standard stock indices price period we shall just refer to the moving average as the 20 day moving average.
To calculate the 20 day moving average the stock indices price of the last 20 days is averaged - and the average is then updated constantly after every new stock indices price period closes. So after every new stock indices price period close is formed the average is then re-calculated afresh using the most recent 20 stock indices price periods, that is why this indices indicator is called a moving average because the average is constantly moving when stock indices price data is updated and re-calculated.
