How to Choose & Select Stock Index Moving Average to Trade With

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

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

Moving average indicator is a commonly used indicator to measure strength of the 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 & sell signals that are used by traders to trade in the direction of the trend, since the MA Moving Average indicator is a lagging indicator and a trend following indicator - this means that it tends to give late Index entry signals as opposed to leading indicators. However, as a lagging indicator it generates more accurate signals and is less prone to whipsaws compared to leading indicators.

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

Short-term trading: 10 -50 MA Period
Medium-term trading: 50 - Moving Average 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 week 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 fake out whipsaw signals compared and analyzed 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.

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

Because long-term moving averages calculate 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 whipsaws).

Learn More Topics & Courses:

Trade Forex Trading

How to Choose & Select Stock Index Moving Average to Trade With