How to trade the 1 day moving average.

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The 1 day moving average came to light a few years ago on forum on which I was one of many traders. Whether others (other than those on that forum) used it before or not I do not know but I do know it was the place I heard about it first.

The 1 day moving average is exactly what it says it is; a moving average (simple) that covers the total period of one trading day on any given index.

With the introduction of 24 hr markets and markets having extended hours it seems more appropriate to use the 1 day moving average on the index charts rather than the futures as these have quite strict trading hours where most of the volume takes place.

So how do you calculate a 1 day moving average? Simply take the total number of minutes in a trading day. For example, the FTSE 100 index opens at 8:00 and closes at 16:30 which is a total of 510 minutes. Then you divide that by the chart period you wish to view. So if you want to view a 5 min chart you will need 510/5=102. That will be the number you enter as the moving average period settings. Obviously if you wanted to view it on a 10 minute chart you have doubled the time so you half the Ma length which would now be 51.

The 1 day ma will look slightly different on different time frames due to difference in how often the ma is updated. But all in all they will show the same information.

So how do you trade the 1 day moving average? The 1 day moving average is certainly no holy grail. In fact it takes a bit of time to see how the price behaves around it. The real issue is that different markets, on a day trading basis, do different things. They are different in the ranges they form, the speed of impulses, some like to retest broken moving averages some don’t. For those reasons the “way to trade the 1 day” methods I list below are what I have specifically noticed on the FTSE100 index. Some will obviously translate to other indices but some won’t.

1) A broken 1 day ma likes to get retested. Thus if the ma has just been breeched, jumping on in that direction at that point is not a good idea.

2) The 1 day ma is a trend indicator. So if the price is under the 1 day ma I would be looking for short trades rather than long trades, and visa-versa.

3) If under the 1 day ma look for impulses downwards and corrective 3 way moves back towards the 1 day ma.

4) The 1 day ma will usually get tested at least once a day.

5) If the price is more than 100pts away from the moving average expect price to chop sideways or correct back towards to the moving average. They will often nearly meet towards the afternoon session if this distance is caused by a gap down at the open.

6) A corrective retest of the 1 day ma will usually bounce back off it the first time or maybe have a little false break through then retreat. However if there is a second attempt expect it to go further through than the first time.

7) Watch out for the two or so sessions every few weeks where the price chops about the 1 day ma. This most likely means we are in a correction and the price will continue in the current overall trend.

Those 7 methods can help build a decent trading picture and keep you on the right side of the market more often than not. It will also help you know when a slow correction might be forming and you can decide if sitting at the trading screen is going to worth it.

It does take a bit of time to learn how the 1 day moving average moves around the price of your chosen market but I think it certainly is worth having on your chart even if you only look at it once a session just to gauge whether it is above or below price. It attracts price but it also repels price. So there is always something happening around it.

Take a look for yourself.

Check out How to trade the 1 day moving average- Part 2

One Response

  1. free legal advice says:

    Grand poteau ! Merci pour prendre le temps d’écrire quelque chose qui est réellement en valeur la lecture. Trop souvent je trouve l’information inutile et pas quelque chose qui sont réellement appropriées. Merci pour votre dur labeur.

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