20 Period Moving Average Strategy
A stocks trader can choose a moving average to trade with based on the stock chart timeframe that they use for trading; a stocks trader might choose the moving average to trade 1 minute stock trading chart, 1 hour stock trading chart, 4 hour stock trading chart, day stocks chart or even weekly stock trading chart.
A stocks trader can also choose to average the closing stocks price, opening stocks price or median stocks price - when choosing a stocks trading moving average indicator.
Moving average stocks indicator is commonly used to measure strength of stocks trends. The data of the moving average is precise and its output as a line can be customized to the preferences of a stocks trader.
Using the moving average stocks indicator is one of the basic stocks trading strategies to generate buy and sell stocks trading signals which are used to trade in the direction of the stocks trend, since the moving average indicator is a lagging indicator and a stocks trend following indicator. The Moving average stock indicator as a lagging stocks indicator means that moving average will tend to give late stocks signals as opposed to leading stock trading indicators. However, the Moving average indicator as a lagging stocks indicator gives more accurate stocks signals and is less prone to stocks trading whipsaws compared to stocks trading leading indicators.
Traders choose the moving average period to use when trading with this moving average stocks indicator depending on the type of stocks style they use; short term, medium term and long term.
- Short term stocks: 20 Period Moving Average Strategy
- Medium term stocks: 50 Period Moving Average Strategy
- Long term stocks: 100 Period Moving Average Strategy
The period of the stocks trading moving average in can be measured in 1 minute stock trading chart, 1 hour stock trading chart, 4 hour stock trading chart, day stocks chart or even weekly stock trading chart. For our stocks strategy example we will use 1 hour stocks chart period.
Short term moving averages are sensitive to stocks price action and can identify stocks trend signals faster than the long term moving averages. Shorter term moving averages are also more prone to stocks whipsaws compared to long term moving averages.
Long term moving averages help to avoid stocks trading whipsaws, but are slower in identifying new stocks trends and stocks trading reversals.
Because long term moving averages calculate the average using more stocks price data points, the long term moving average does not reverse as fast as a short term moving average and it is slow to catch the changes or reversals in the stocks trend. However the longer term stocks trading moving average is better when the stocks trend stays in force for a longer time.
The task of a stocks trader is to find a moving average period that will identify stocks trends as early as possible while at the same time avoiding fake out signals - stocks trading whipsaws. As a stocks trader you will need to first test different stocks trading moving average periods before deciding which stocks trading moving average period is best suited for your trading style based on the results of the testing that you will do using different moving averages.
Moving Average Period Strategy
Moving average stock technical indicator is a trend following stocks indicator that is used by stocks traders for three things:
- Identifying the beginning of a new stocks trend
- Measure the sustainability of the new stocks trend
- Identify the end of a stocks trend and signal a stocks trend reversal
The moving average stocks indicator is used to smooth out the volatility of stocks price action. The moving average indicator is an overlay indicator and it is superimposed on the stocks price chart.
On the moving average stock trading example illustrated and explained below - the blue line represents a 20 period moving average, which acts to smooth out the volatility of the stocks price action.
20 Period Moving Average Strategy - 50 Moving Average Trading Strategy - 100 Period Moving Average Strategy
Calculation of the Moving Average Stocks Price Period
The moving average is calculated as an average of stocks price using the most recent stocks price data point - stocks trading periods.
If a moving average uses the 20 period to calculate the moving average then it is referred to as a 20 period moving average, because most stocks traders use the day stocks chart as the standard stocks price period we shall just refer to the moving average as the 20 day moving average.
To calculate the 20 day moving average the stocks price of the last 20 days is averaged - and the average is then updated constantly after every new stocks price period closes. So after every new stocks price period close is formed the average is then re-calculated afresh using the most recent 20 stocks price periods, that is why this stocks indicator is called a moving average because the average is constantly moving when stocks price data is updated and re-calculated.
