4.14 Which Moving Averages of What Time-frames are Best?

 
Well, before we talk about this controversial topic, let’s be a bit generic here. Are there “bests” and “worsts” for anything? Probably not; there are better and worse but trying to find out the bests and worsts is a bit too much to expect. Same applies to type of moving averages and their time-frames (period).
 
Traders around the world use all three i.e. simple moving averages (SMA), weighted moving averages (WMA) and exponential moving averages (EMA) and when all these three are being used, it means that all these three works, right? While saying this, please note that EMA and SMA are used more than WMA and this can make your life easier as you may decide to drop off WMA. However, please experiment with all three on your demo account and try to see which fits your trading style the best. As you have seen in the comparison of SMA and EMA that SMA’s are slow to react to the price change and EMA’s are quite fast. Considering this for short-term trades you may find short-period EMA’s more dependable. 
 
You may like to use long-period SMA’s for long-term trades.
 

Which periods?

 
Some of the commonly used periods are 10, 14, 20, 55 and 200.
 
As we mentioned that you need to experiment with different combinations to see what suits you more. As a trader we need to create our trading system and follow it, sometimes mechanically. This takes out the psychological issues to a great extent. You just follow your design and do not enter and exit because of fear or greed. Hence try to experiment different moving averages of different periods to design your own system.
 
You wanna ask what we use?
 
We use the following:
 
  • SMA of 200 periods for longer term trends and positions.

 

  • EMA’s of 5, 22 and 55 periods for crossover trading and to identify strength of trend.
 
On a daily chart a 5 day EMA means the weekly EMA, 22-days EMA means monthly EMA and 55 days moving average, which is a quite commonly used one, representing two and a half months’ moving average. However the same EMA can be used on charts of any time-frame i.e. hourly or 4-hourly or time-frames you work with.
 
200-day moving average is again a very commonly used indicator globally.
 
Sometimes pictures say a lot more than words and hence let’s have a look on some of the Forex charts with these moving averages.
 

Example 1 

200-day SMA trading strategies. 

 

Example 2

Trading with 200-day SMA by detecting long term trends.

 

Example 3 - Trading with 5, 22 and 55 Period EMAs

Forex trading with 5, 22 and 55 day moving averages.

 

Example 4 - Another Forex chart with 3 EMAs

Another forex chart for trading with 3 moving averages.

 

Example 5 - Trading with 5, 22 and 55 period moving averages on short time frame charts

 

Trading with 3 moving averages on 4 hourly chart.

 

  

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