Moving Average Calculation | Moving Average Tweak I’ve Found Very Useful

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Hi everyone! This is Erich from Traders Helping Traders – supportandresistance.com – with this week's Tricks of the Trade. This week I'm going to show you a little something that you can do with your moving average lines on your futures charts, something that was brought to my attention by Rob Tovell of Oncourse Trading. Rob and I actually trade in a very similar fashion, but this is one thing about moving average lines that I didn't really consider until Rob mentioned it. It's a very valid point and I'm going to share it with you today. I want to point out that this is something that works in all timeframes so you day traders might want to incorporate this as well. It actually works quite well for Day Trading. A lot of times I will run just a single moving average line on my chart. I tend to use a longer moving average line like a 55 or pehaps a 60 and if the market is trading above my moving average line I consider it to be bullish, and below the moving average line bearish. It's just a very simple indicator to tell you what the market is doing. You can also look at the moving average line itself to see how it's moving. If it's moving down, well of course the market is bearish, if the moving average line is moving sideways – and you'll be surprised how often this happens if you look for it – you'll know the market is neutral (and you'll know to avoid it). If the moving average is moving highter then of course the market is bullish and we should be looking to buy. I also like to put a second moving average line on the chart on occasion. My line of preference, and coincidentally also Rob's line of preference, is the 20 period moving average line. This works great on a daily basis but it has merits for an intraday basis as well. From a Daily chart point of view there are 20 trading days in the month so the 20 period moving average line roughly represents the monthly trend. You can see on the chart in the video that it's a little bit more responsive and follows prices more closely – but here's the principle I want to share with you: when prices are below BOTH lines, then that is the time to consider a trade. When prices are above BOTH lines, then that is the time to consider a trade. However, when prices are between the lines as they are back here on the chart, or as they are right here, these are the times to avoid a trade. Now on a daily chart these regions are rarely as large as they will be on an intraday basis. Rob even coined the term "abatoir" which is french for "slaughterhouse" because those regions are where a lot of traders end up getting killed. Why? Well, simply because the market has no defined direction. When prices are trading in between the moving average lines, what does that tell you? If we changed this and put say a 5 period moving average on here as well, look at the chart without any bars on it…just your moving average lines. Read more including a heads up about some Moving Average tools, and support and resistance trade picks for next week – in the Big Weekend Edition at http://www.supportandresistance.com/Moving-Average.html.

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