Swing Trading Moving Averages
Moving averages help swing traders track the big money. Over time, buying and selling pressure leaves behind a trail that smart swing traders spot and use for trends, entries and even exits.
Ask 10 swing traders about their best performing moving averages and you will get 6-7 different answers with the 20-day, 50-day and 200-day taking the top 3 spots in one form or another.
By form, I mean there are various ways moving averages can be calculated such as simple, exponential, weighted, displaced, volume-weighted, etc. The potential combinations are enough to make your head spin. However, beginner swing traders should stick with simple or exponential, as those are the most commonly used.
Traders use moving averages to illustrate the overall trend of a stock. That trend can be displayed over a short or long time period. Many traders use the more common moving averages as support and resistance, some take it a step further using the MAs as targets and stops for a particular trade.
5 most common moving averages among swing traders and why they are important.
10-day moving average.
This also known as the hedge fund moving average, as many hedge funds often to use this MA to adjust position their large positions. This one can be especially helpful for following the fast changing trends in momentum stocks.
20-day moving average
The most widely used because there are 20 or so trading days in a calendar month. Many short-term traders and active investors prefer to establish positions in a trending stock using this moving average.
50-day moving average
This moving average is a key one for swing traders, as institutions, big money also use this time frame. It is basically the same as the 10-week moving average with both MAs consisting of 50 days of trading data. The 10-week MA would likely be the shortest MA utilized by anyone trading off a weekly chart.
Why the 200 Period Moving Average is Significant
200-day moving average
The 200-day is right there with the 20-day as the most significant moving average available to all market participants. There are institutions, hedge fund and mutual funds that are not allowed to own stocks that trade below their 200-day for a prolonged time. For many investors, they use the 200-day to define if a stock is bullish or bearish, strong or weak. When a stock trades close to it’s 200-day, it usually finds tremendous buying or selling pressure, depending on the prevailing trend.
20-week moving average
Another beloved moving average of institutions, it is the most commonly used MA on a weekly chart. Swing traders can benefit knowing it is essentially the 100-day moving average as well.
For beginning swing traders, it important to establish your core time frame for swing trading, then understand how these moving averages work within it. Keep in mind the same MAs can mean different actions for the day trader, swing trader and institutional investor.by