What Is The Best Moving Average To Use In Trading?

Moving averages, technical analysis, do they even work? Do they even have predictive nature? In trading, never overcomplicate things. When many people believe in something, it’s partially true. I personally love using moving averages, they do have predictive nature. But always keep in mind, it only takes one big player to sell to break the support, anything can happen in the market.

I always see people arguing what is the best moving average to use. They are overcomplicating things. On my chart, I only have 4 moving averages and no other indicators, the 4 moving averages are 10,20,50,200 days, the most common period of moving average. Why I did choose these 4 values? It’s the most commonly used, like I mentioned, if many people believe in it, it’s partially true. Simple as that.

People further overcomplicate it by inventing exponential moving average into the option, from my point of view, they are all the same, they are good tools to use. People further invents more and more indicators because of human nature, they want to predict the market with certainty, but too bad, the market’s nature is uncertain. What works today, might not work tomorrow, it might work again in the future. It’s an art.

Another way that you can think of moving average is just a smoothing curve to the period of the average days, to help visualize the trend in different time-frame. They are really great tools to use to filter the up-trending strong stocks.

Which Moving Average Do I Think Is The Best?

Sorry to inform you that there is no such thing as the best moving average, they all serve a different purpose to different types of trading strategies.

Here is how I use the different moving averages.

For a 200 days period moving average, I personally put it into the chart so that I am not trading anything that is in a “Stage 4 downtrend”, please go through the book from Stan Weinstein, “Secrets for profiting in bull and bear market” to understand what is a stage 4 uptrend means.

Even Paul Tudor Jones, one of the greatest traders ever once mentioned that never should a person trade something that is below the moving average 200. They had done the research, you don’t need to waste your time to re-invent things.

For 50 days moving average is the favorite for growth stocks traders/investors, strong growing stocks always obey this moving average, they may undercut, but they come back quickly afterward. It’s a very good period of moving average to use for a larger swing trade. I personally used it when I think I had bought into something that is so “futuristic” that the growth is infinite and over-exaggerated by the public.

For a 10 days and 20 days period moving average, is personally the best for short-term swing trades. I personally use it when I think the market is over-extended, that’s the last line of defense that I will consider when going for a short-term swing trade.

Not only that, human likes to complicate things, there are also golden cross or whatever cross that used by many traders/investors as well, I personally think anything can work, it really depends on how you use it, how good are you at placing the stop-loss.

Moving average is the best tool that everyone should be using. The problem that many are facing is because there are too many options in the market, people re-invent many things to try to satisfy the accuracy of predicting. But in the market, you can’t predict, it only takes 1 big player to change the course of a price movement.

The moving average tool is not the problem, the problem is the users themselves. Don’t try to overcomplicate things, simplicity is the way to go, trading is an art.