Moving averages are one of the most widely used technical indicators in BetPro Exchange trading. At first glance, calculating and charting moving averages seems straightforward. However, effectively utilizing moving averages in a trading strategy can be nuanced. In this comprehensive guide, we’ll cover everything you need to use moving averages to their full potential.
What Are Moving Averages and How Do They Work?
A moving average is a technical indicator that smooths out price data by creating a constantly updated average price. The two most common types used in BetPro Exchange trading are:
Simple Moving Average (SMA)
An SMA calculates the average closing price over a set period. A 10-day SMA, for example, would add up the closing prices over 10 days and divide by 10. As each new price comes in, the earliest price drops out of the average.
Exponential Moving Average (EMA)
An EMA applies more weight to recent prices. It does this using a formula that includes the previous EMA value. Due to the exponential weighting, EMAs react faster to price changes than SMAs.
In essence, moving averages help filter out daily price fluctuations (aka “noise”). Instead of focusing on each swing, traders can see the bigger picture trend.
Now let’s examine how to effectively apply moving averages in live markets.
Choosing the Right Moving Average Lengths
Moving averages come in all different lengths, typically ranging from very short-term cycles up to 200 days. So which lengths should BetPro Exchange traders use?
10 and 20-day MAs for Swing Trading
For swing trading strategies with a few days to weeks holding period, the 10 and 20-day moving averages are excellent choices. The 10-day reacts quickest, while the 20-day smooths things out a bit more.
Here’s a useful guideline from the BetPro Exchange education portal:
“Crossovers of the 10-day and 20-day SMAs or between the price and the 10-day SMA can provide good signals for shorter term trades.”
So watch for the 10-day line crossing up through the 20-day line, or the price crossing up through the 10-day line, as bullish swing trade entry signals.
50 and 200-day MAs for Long-Term Trend Trading
For position trading strategies lasting weeks to months, the 50 and 200-day moving averages best capture the bigger trend picture.
When price holds above the rising 50-day line, it signals an ongoing uptrend. If price then crosses back below a rising 200-day MA, it flags the official trend change.
Let’s see examples of how to trade crossovers of these key MAs.
Trading Moving Average Crossover Signals
When a shorter moving average crosses a longer moving average, it generates a crossover signal. This signals potential turning points in the market.
Here are two reliable crossover strategies BetPro Exchange traders implement:
10/20 Crossover System
This system watches for crosses of the 10-day EMA above/below the 20-day EMA:
- Bullish crossover – 10-day crosses above 20-day = buy signal
- Bearish crossover – 10-day crosses below 20-day = sell short signal
Enter on the crossover and exit when the average lines crossover back in the opposite direction. Or trail with a stop below swing lows for bigger capture of trends.
50/200 Crossover Method
This system utilizes the 50-day SMA crossing the 200-day SMA:
- Bullish crossover – 50-day crosses above 200-day = buy signal
- Bearish crossover – 50-day crosses below 200-day = sell short signal
Use these signals to trade in the direction of the bigger trend. Close out positions when the moving averages crossover back the other way.
Now let’s move on to another important technique – using moving average support/resistance.
Trading Moving Average Support and Resistance Levels
In addition to acting as trend trade entry signals, moving averages also serve as dynamic support and resistance.
After a period rallies or sells off sharply, prices will often pull back. When they reach a key moving average line, it then acts as support or resistance.
Here is an example strategy for trading pullbacks using the 50-day SMA as support/resistance:
- Identify a strongly trending market with price above 50-day SMA (for uptrend).
- Wait for natural period of consolidation, where price pulls back to 50-day line.
- Enter new long position as price bounces off 50-day SMA support.
- Place protective sell stop below most recent swing low. Trail stop up behind price swings.
- Exit entire position if price closes decisively below 50-day SMA line.
Repeat the process by looking for oversold bounces along the 50-day SMA during downtrends.
Moving averages truly act like a “moving” support/resistance level. This makes them extremely helpful for timing entries and exits.
Next, let’s examine how moving average ribbons identify high probability setups.
Trading Moving Average Ribbon Signals
While individual moving averages provide helpful signals, combining two or more moving averages creates a “ribbon” with even stronger trading signals.
One of the most common ribbon strategies involves the 20-day EMA and the 50-day SMA:
- Uptrend signal = 20-day EMA above 50-day SMA
- Downtrend signal = 20-day EMA below 50-day SMA
When the two averages align in the right direction, it indicates a high probability opportunity in line with the dominant trend.
You then look for entries when price pulls back to the moving average ribbon support/resistance zone. This confluence between ribbon condition and support/resistance produces excellent risk/reward setups.
Below is an example of how to trade a moving average ribbon system:
- Identify uptrend when 20-day EMA stands above 50-day SMA (ribbon bullish).
- Wait for pullback to ribbon zone, ideally midway through extended sideways period.
- Enter long position as price bounces off 20-day/50-day ribbon support.
- Place protective sell stop below last swing low or just below ribbon.
- Trail stop up behind price swings to lock in gains as trend resumes.
Repeat the process in reverse during downtrends, buying pullbacks off the ribbon once it flips bearish.
Choosing Moving Average Periods and Types
We’ve covered the most widely used moving averages – the 10-day, 20-day, 50-day, and 200-day. But traders can utilize a wide range of moving average lookback periods and types.
Here are some additional moving average guidelines:
- For swing trading, experiment with 15, 30 or 65-day SMA/EMAs
- For positional trading, add a 100-day SMA
- For long-term or portfolio equity analysis, check the 150 and 200-day EMA
- Compare SMA vs EMA action to see which type flows better with price
- Plot multiple MAs together to identify confluence and crossover signals
In general, focus on a few key moving averages for simplicity and easier analysis. Too many lines can overcomplicate the picture.
Now let’s move on to examining exactly how to add moving averages to your BetPro Exchange charts.
Adding Moving Averages to BetPro Exchange Charts
Plotting moving averages on your trading charts makes it much easier to analyze price action and spot potential signals in real-time.
Here’s a step-by-step guide to adding moving averages to BetPro charts:
- Open BetPro Exchange platform and a chart on the exchange you wish to analyze
- Select “Indicators” button in upper left corner to open Indicator window
- Click on “Moving Averages” section to expand menu
- Check boxes next to desired Moving Averages and periods (such as 10-day and 50-day)
- Click “Apply” to add selected MAs to open chart
- MAs will now display as simple lines that move along with price action
Repeat to add or remove additional moving averages. Use crosshair icon to view exact MA price levels on any bar.
With your key moving averages now easily visible, you’re ready to start spotting high probability trade setups!
Next let’s examine how to combine moving averages with other trading indicators.
Combining Moving Averages with Additional Indicators
While moving averages work well on their own, combining them with other technical indicators can provide more robust signals.
Here are two excellent indicators to use with moving averages:
1. Volume
Analyzing volume surges on MA crosses or support/resistance tests adds confidence to a setup. Rising volume on moving average bounces confirms institutional accumulation.
2. Momentum Oscillators
Oscillators like MACD and RSI identify overbought/oversold turning points. Look for crossovers out of extreme zones to signal high probability MA bounce trades.
A simple approach is to only take MA signal trades in the direction of the oscillator. For example, only buy MA support tests if the oscillator line is oversold and already turned back up.
For further reading, see the BetPro Exchange education resource Combining Technical Indicators for more signal stacking tactics.
Now let’s move on to assessing whether price action is genuinely respecting the moving averages.
Validating Moving Average Signals and Support/Resistance
The key to effectively trading moving averages lies in closely analyzing how price action interacts with the MA lines.
Follow these guidelines to confirm whether MAs provide authentic signals and dynamic support/resistance:
- Repeat tests – Price should test the same MA level multiple times. The more tests, the stronger the valid support/resistance.
- Reactive bounces – Watch how quickly price snaps back off a test. Fast, sharp bounces signal institutions defending key MA levels.
- Volume surges – Rising volume on tests indicates accumulation at important MAs. High volume MA breakouts signal conviction in continued trend direction.
- Confluence – Multiple MAs converging around the same price zone strengthens importance of potential support/resistance.
- Momentum Divergence – Bullish/bearish divergence of an oscillator with price at MA tests flags underlying strength/weakness in prevailing trend.
Apply these validation tactics before placing trades based on moving average signals or support/resistance. Doing so will dramatically improve your timing, entry price, and overall trading accuracy.
On that note, let’s move on to discussing common moving average trading mistakes to avoid…
Top Moving Average Trading Mistakes to Avoid
While moving averages are extremely popular trading tools, many traders make critical errors applying them. Here are the most common moving average mistakes:
- Acting prematurely – Entering positions too early before wait for moving average crossover confirmation or support/resistance test
- Not using stop losses – Neglecting to place protective sell stops leads to large losses when MAs break
- Going against dominant trend – Taking signals from shorter MAs against the larger trend shown by longer 50-day & 200-day MAs
- Forgetting to adjust stops – Failing to trail stops often enough leads MAs acting as resistance instead of support
- Ignoring confluence – Not waiting for moving average alignment with other indicators before entry
- Not confirming signals – Blindly taking all MA crossover signals without properly validating price action behavior
Avoid making these mistakes by studying examples, paper trading initially, and remembering: patience, prudence and confirmation is key.
Now let’s cover a few commonly asked questions when learning to apply moving averages…
Frequently Asked Questions
Should I use simple or exponential moving averages?
Test both to determine if SMA or EMA works best for particular market conditions. Generally EMAs react quickest, while SMAs provide smoother support/resistance. Many traders use exponential MAs for shorter periods and simple MAs for longer periods like the 50 and 200-day.
How many moving averages should be on one chart?
Start with just 1-2 key moving averages like the 20 and 50-day. Then add additional MAs like 10-day and 100-day for faster or slower signals. Too many MAs clutters the chart. Keep it simple when starting out.
Where should I place stops when trading MA signals?
Generally set just below the last swing low for safer entries and tighter stops. Another method is placing stops just below moving average entry signals or support levels. Trail stops up behind price swings to lock in profits during sustained trends.
Can moving averages work on any market or timeframe?
Yes. Apply on 1 minute charts for intraday scalping strategies or weekly charts for long-term position trading systems. Moving averages smooth out price action to reveal hidden support/resistance on any market and timeframe.
Which moving averages should be used for day trading vs swing trading?
For day trading, faster MAs like 5, 10 and 20-period work best. For swing trading, use slightly slower 10, 20 and 50-day MAs to filter out counter-trend price action. Always experiment to determine the ideal MA periods for your strategy.
Conclusion
We’ve covered everything you need for effectively applying moving averages:
- Exactly how to trade crossover signals
- Using MA lines as dynamic support and resistance
- Combining with additional indicators
- Key guidelines for confirmation and optimal entries
The most important next step is thoroughly backtesting MA techniques on historical charts. Forward test your strategy by paper trading it in the live market.
Consistently apply high probability moving average signals with proper confirmation and risk management. Avoid common errors amateur traders make misusing MAs.
If you commit to mastering these moving average strategies, they will provide reliable signals for many years to come.
To learn more, sign up for a free BetPro Exchange practice account to start analyzing charts and testing out moving average trading rules.