This article was originally written because we had a member asking us how to choose what length moving average to use as he had noticed that Stock-Market-Strategy uses moving average to determine the trend.
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Moving Average Length
We simply use a 50 and a 150 Moving Average (MA). The 50 period because many hedge funds and momentum traders use this length and the 150 period is because Stan Weinstein used a 30 week MA that then equals a 150 MA 5 trading days a week.
This does not really answer how to choose which length you should use but the answer is not that simple as it’s not the length that’s important but where price is in relation to the chosen Moving Average. We can however, recommend one thing and that is having two moving averages on your chart; a short/intermediate and a long term.
Stock-Market-Strategy is using Moving Averages in two ways but still with the same thing in mind, what has occurred previously on the chart:
We look for the slope of the MA compared to the MA in the past. For example if we are experiencing a down sloping MA that has not occurred before in the current uptrend, then we know a potential big change is about to occur.
We use the MA as a reference point to see where the price is relative to the moving average. We are not necessarily looking at price hitting or bouncing off the moving average. We then see how price has been relative to the moving averages prior to current price.
