in this video we will share three ways to use the moving average indicator to generate accurate trade signals if you are serious about trading you should definitely check out our free training program the links are in the description below with that being said let's get into today's video what is a moving average a moving average is a simple technical indicator that calculates the average closing price of an asset over a particular period of time so a 10 period moving average calculates the average close price of the last 10 candles a moving average helps us reduce
the noise of the markets and paint a clear picture of a trend different moving averages are used for different Trends a 200 period moving average can be used to identify the long-term trend of the market similarly a 20 period moving average can be used to determine the short-term trend of the markets 20 50 100 and 200 are some of the most popular moving averages generally speaking a moving average is used to identify the trend of markets and simplify the price action but let's dive deep into the specific uses of the moving average that can help
us make better trade decisions uses of a moving average the moving average primarily has three uses number number one identify the trend number two identify a trend change number three identify areas of support and resistance let's start with identifying the trend using the moving average the moving average is a trend indicator therefore its primary function is to help us identify the trend of the price now we have three techniques to accomplish that price versus moving average the location of the price compared to the moving average can help us determine the trend of the markets if
the price is currently above the moving average and has consistently stayed above it then the price is considered to be in an uptrend as a logical Trader we want to trade in the direction of the trend therefore we should be looking out for buy opportunities in this scenario on the other hand if the price is below the moving average and has stayed below it for some time then the price can be considered to be in a downtrend we should look for selling opportunities in this case lastly in sideways or range-bound markets you will see that
the price does not stay above or below the moving average for longer periods it always switches above and below the ma like a pendulum in such scenarios it is best to stay away and wait for a clear Trend to to develop a simple trick for a better analysis would be to use the two moving averages with different period settings this way you get the long-term and short-term analysis of the price here is a simple example on this chart we have two moving averages the yellow line is a 20 ma and the blue line is a
200 ma the 20 ma is a short-term moving aage average so it should give us the short-term trend of the markets similarly the 200 ma is a long-term moving average therefore it gives us the long-term trend of the markets now let's completely ignore the 200 ma for a moment if we only focus on the 20 ma we can say that during these periods the price was above the moving average which indicates that the price is in an uptrend so we should look for Buy buying opportunities similarly during these periods the price was below the moving
average which indicates that the price was in a downtrend therefore we should look for selling opportunities but if we look closely there was not a lot of price movements in these down moves now if we add the 200 ma back we can see that the price stayed above the 200 ma for the whole time this indicates that the price was in a long-term uptrend for the whole time with this extra information we can say that selling during this period would have been risky because we would have been trading against the long-term Trend here is another
example when we zoom into this section of the chart we see that the price was moving around the 20 ma for an extended period of time therefore it means that the price is in a short-term sideways Trend but at the same time the the price stayed above the 200 ma this means that the price is in a long-term uptrend so we have a sideways Trend with a long-term upward bias in such a case either we avoid trading because of the sideways movement or we can place buy trades around the lower end of the range but
we cannot enter sell trades at the upper end of the range because that would go against the long-term Trend using two moving averages will not provide you with better trades but it will help you avoid bad trades if you are enjoying the video so far then like this video And subscribe to our channel so that you never miss our new videos moving average slope the slope of the moving average also gives us a good hint about the strength of the trend in an uptrend the moving average is sloped upwards in a strong uptrend the slope
of the moving average will be Steep and close to a 45° angle while in a weak uptrend we see a gentle upward slope the same thing applies to downtrends in a strong downtrend we see a steep downward slope with approximately a 45° angle in a weak downtrend we have a gentle downward slope this information is helpful because if the trends are strong we can be more aggressive in our entries but if the trend is weak we must be more careful with our trades large versus small moving average another way to identify the trend of the
market is by using two moving averages and looking at their positions for example we have plotted a 50 and 200 Ma on the chart the 50 ma is called the smaller Ma and the 200 is the larger Ma when the smaller ma is above the larger ma the price is considered to be in an uptrend and in an uptrend we look for buying opportunities on the other hand when the smaller ma is below the larger ma we consider the price to be in a downtrend and as logical Traders we need to look for selling opportunities
in these times so these were the three techniques that can be used to identify the trend using the moving average indicator now let's learn how to use the moving average to identify reversals to identify a trend reversal we have two techniques number one price crossover as we discussed earlier the price tends to remain above the moving average in an uptrend and in a downtrend the price remains below the moving average using the same logic when the price crosses the moving average from above it indicates that the uptrend is over and a downtrend will begin therefore
it indicates a bearish reversal in price similarly when the price crosses above the moving average from below it indicates that the downtrend is over and the price will start a new uptrend remember not all crossovers are signals and many of them can be fake signals to avoid such false signals we can use a moving average crossover instead a moving average crossover is one of the most popular ways to use the indicator for this we need two moving averages with two different period settings just like earlier we will use the 50 and 200 ma for this
as well earlier we learned that in an uptrend the smaller ma is above the larger ma similarly l in a downtrend the smaller ma is below the larger Ma using the same logic we can say that whenever the smaller ma crosses below the larger ma it indicates that the price has shifted from an uptrend to a downtrend so it is a sign of a bearish reversal similarly when the smaller ma crosses above the larger ma it indicates that the price has shifted from a downtrend to an uptrend hence it is a sign of a bullish
reversal we do not suggest you place trades at these reversals but you can use them with other factors to make better trade decisions so these were the two techniques to identify reversal we are now moving on to one of the most important uses of the moving average identifying dynamic levels of support and resistance when we talk about support and resistance we talk about a fixed price level where the price is expected to reverse however the moving averages can act as a dynamic level of support and resistance in an uptrend we see that the price stays
above the moving average now whenever the price returns to the moving average the price finds support so we can look for buying opportunities near the moving average in an uptrend in this example the moving average provides support to the price on three different occasions on the other hand in a downtrend we see that the price stays below the moving average and whenever the price comes near the moving average it finds resistance so we can look for selling opportunities near the moving average in a downtrend in fact the price finds resistance for a total of five
times so this is how the moving average can act as a level of support and resistance for the price and that brings us to the end end of this video in this video we learned how to use the moving average indicator for our trading if you are seriously interested in learning then you can check out our free training the links are in the description below if you like this video then be sure to hit the like button and subscribe to our channel so that you don't miss any of our new videos see you soon
