How to Choose Stock Indices MA Moving Average to Trade With

A trader can choose a moving average based on the trade chart time frame that he is trading; the trader might choose to use this MA Moving Average indicator on the minute trade charts, hourly trade charts, day trade charts or even weekly trade charts.

The trader can also choose to average the closing price, opening price or median price.

Moving average indicator is a commonly used indicator to measure strength of trends. The data is precise & its output as a moving line can be customized to a trader's preferences.

Using the moving average is one of the basic ways to generate buy and sell signals which are used to trade in the direction of the market trend, since the MA 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 indicators. However, as a lagging indicator it gives more accurate signals & is less prone to whipsaws compared to leading indicators.

Traders choose the moving average period to use depending on the type of Stock Indices trading they do: short-term trading, medium-term trading & long-term trading.

• Short-term trading: 10 -50 MA Period
• Medium-term trading: 50 - MA 100 Period
• Long-term trading: 100 - MA 200 Period

The price period in this case can be measured in minute trade charts, hourly trade charts, day trade charts or even weekly trade charts. For our example we will use 1 hour trade chart time frame period.

Short-term moving averages are sensitive to price action & can spot trends signals faster than the long term moving averages. Shorter term moving averages are also more prone to whipsaws compared to long term moving averages & a trader should choose a price period that will generate a signal early but not give too many trading whipsaws.

Long term moving averages help avoid whipsaws, but are slower in spotting new trends & trend reversals.

Because long term moving averages calculate the average using more price data, it does not reverse as fast as a short term moving average & it is slow to catch the changes in the trend. However, the longer term moving average is better when the trend stays in force for a longer time but might also give late signals.

The work of a trader is to find a moving average period that will identify trends as early as possible while at the same time avoiding fake-out signals (Indices trading whipsaws).