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Trading 101: Moving Averages

Simple averages are perhaps the most common and known indicators applied to the charts.

As a reference, in F-lab we apply 3 simple moving averages (SMA) to daily charts: 20 bars, 50 bars and 200 bars. The reason? simply because investors and traders used to look at just these averages. So, many decisions are taken observing price behavior against these 3 SMAs – and we want to know.

SPY_D_20160401

Looking at intraday charts, we use 2 special averages:

  1. an exponential moving average (EMA, more sensitive to last prices) as primary support during pull-backs, optimized in the range 8 to 17 bars – that means different stocks has different EMAs  (blue, 9 bars in the IBM 5 min example chart)
  2. a volume weighted moving average (VWMA) and two bands to measure extreme movements, 1.00 and 1.25 standard deviations (gold in the IBM 5min example chart, green and red the extension bands).

IBM_5m_20160401

Good trading with F-lab. We test market trading ideas and indicators with our software tools to support discretionary swing trading decision about USA stocks market.

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