Index Trading With Moving Averages

⭐ A Traders’ Favourite

The cutting-edge flexibility of moving averages makes them highly popular among traders. Moving averages (MA) can be used for any time frame and for any period.

🔎 Factors To Consider

Let’s take a look at the primary factors to consider when using moving averages.

1. Timeframe: Consider the 20 Simple Moving Average (SMA). Here, the numeral 20 denotes the number of candles considered in calculating the average price. So, if we use a daily timeframe, the SMA calculates the average price of the last 20 trading days. If we use a 5-min timeframe, the SMA takes into consideration the last 100 minutes of the trading session.

2. SMA Vs EMA: Moving averages can be Simple or Exponential. The SMAs take the midpoint of the candle for the average price calculation, which is responsible for the linear progression of the price. Also, the EMAs smoothing makes it more receptive to recent prices than older ones. This makes EMAs our go-to indicator.

🏆 Expert’s Choice

According to CA Manish Kumar Singh, the best timeframe for index trading is 5-min. However, scalpers can choose between 3-min or 5-min timeframes. The irrelevant noise that occurs when we use a 1-minute timeframe makes it undesirable. We can toggle between the timeframes to measure the strength of any trend. If the chart is consistent, it implies that the trend is more likely to continue.

🛠️ A Tool With Many Perks

Its application is not limited to intraday trading. The positional traders also use moving averages for their analysis. They target big moves and place big stop losses. For traders who trade in futures, moving averages are the ideal tool. Future traders don’t have to worry about theta decay so they stand a better chance of catching these big rallies. They also can exercise their right to roll over their position next month. They need to pay some cost of carry to exercise this right.

To learn about Manish Kumar Singh’s trading strategy with a secondary confirmation, watch this video.

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