How I Use Moving Averages

for Short Term Trading

Andrew (with help from Thor)
May 6, 2020
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Outline
• What are MAs I use?
• Simple, Exponential
• What they indicate

• How I use them?

• Support, Resistance
• Direction and Evaluation
• MAs Crossovers and Extreme Reversals Strategy
• Trade Management (Thor)
What I do, works for me, it is not
THE correct or only way.

There are many correct ways of

trading.

Use the community knowledge to

build your own edge.
Some Inspiration
How Simple Moving Averages are Calculated

9 Moving Average

I use (H+L)/2 for intraday.

Swing traders usually use “close”
How Simple Moving Averages are Calculated

A
B

9 Moving Average

I use (H+L)/2 for intraday.

15 Moving Average Swing traders usually use “close”
How Exponential Moving Averages are Calculated
“Closer the Candlestick
The More Effect It Has ”

15 Moving Average

Formula is complicated.
Good news:
Platforms calculate it for us!
Simple vs Exponential?

• Exponentials are more

sensitive and responsive Reversal shown
to price change: they by 9 Exp.
“bark” faster
9 Exp. barked too early!
• Simple ones are
smoother with less
whipsaw, but they lag 9 Simple lagged in reversal.
more to price changes.
 Simple vs Exponential?
It is generally accepted:

• To use 1 or 2 exponential MAs for smaller time frame (need sensitivity):

I use 9 and 20 EMA with (H+C)/2 in ALL timeframes.

• To use 2 or 3 simple MAs for higher timeframe (you need smoothness):

I use: 50 and 200 SMA with (H+C)/2 in ALL timeframes.

Why 9, 20 (EMA) and 50, 200 SMA?
• Absolutely no reason. I chose them, and I married 9 EMA 20 EMA 50 SMA 200 SMA
them.
• These numbers mean NOTHING.
• Some people try to find numbers that mean
something: like hours in trading day, number of
days per month, per year etc, but its wishful
thinking.
• 50 and 200 SMA are WELL established, and almost
everyone is using. 100 SMA is also well used.
• For EMA, a ratio 1:2 usually used.
example: use (7, 14 EMA) or (9, 18 EMA).
Live with your indicator settings!
• Use a setting and live with it.
• Do not torture indicator for each scenario to find “optimum” value.
There is none. They are all “subjective”.
• There is NO correct number.
 Moving Averages: Lagging Indicators
• Unlike Level 2 (which is a leading indicator), ALL moving averages
are calculated based on previous candlesticks and are known
lagging indicators.

• MAs tell you about “present” based on the past data.

• They do not tell you anything about “future”.

• It is like a thermometer. So you use them, with other indicators to

“predict” [or to “plan”, a better word] the future.
Slope Moving Averages Tells “the Trend”
 Speed of Moving Averages

• Smaller moving averages are faster.

• Exponential moving averages are
faster.
In my MAs the order of speed is:

9 EMA > 20 EMA > 50 SMA > 200 SMA

• Faster moving averages are closer to
the price (hug/kiss price more often).
• That is why I do not color code them!
(personal choice).
How I Use MAs

1. Daily or Intraday Support and Resistance

2. Direction and Evaluating for Entry and Exit

3. Entry Signals (for Extreme Reversals of MAs Crossovers)

4. Trend Management: Add on Moving Average Pullbacks (Thor)

1. Support and Resistance
• Important:
MAs are different in different timeframes.
• 9 MA in daily chart is different from 9MA in 5-min chart. (why?)
• Because value of periods points [Close+High]/2 is different on each time frame
1. Support and Resistance
Examples of Some MAs on daily
Find near MAs, close to “current price” for stock in play

If gapped down
Look for 2-3 ATR range

???
Not really.
Case Study
AMD Gapped down in
April 29, 2020
$52.80 ish
1. Support and Resistance (see 20 EMA on daily)
1. Support and Resistance
Examples of Some MAs on daily
Find near MAs, close to “current price” for stock in play

If gapped down
Look for 2-3 ATR range

???
Not really.
200 SMA is Very IMPORTANT in All Timeframe
especially daily and weekly for investors and swing traders.
200 SMA is Very IMPORTANT in All Timeframe
especially daily and weekly for investors and swing traders.
2. Direction and Evaluation For Entry

• Price above MAs

• Price below MAS

• How far above or below from MAs.

• Further from MAs, are more extended and risk of “chasing”

Extended from MAs, and VWAP.
Better entry near pullbacks
Weak stock, below VWAP and MAs
Lost 200 MA on 5-min
5-min ORB down?
No, above MAs (support)
Strong stock
Entering on Strong Trending Stocks (more Thor)

• Stock in play gapped up strong with positive catalyst. (usually over 5%)

• It is being traded above VWAP.

• Early morning pull backs to 1-min 20EMA can be a good entry.

• DO NOT SHORT early on pull backs.

DO NOT SHORT THESE STRONG STOCKS in OPEN.
Wait for afternoon session: Booty Reversals

Usually 20EMA (low risk)

pull back are good entry place
All day strength. Wait for afternoon reversals (see MA crossover later and Booty Reversal)
Buy on 20 EMA pullbacks.
Strong stock.
Reversals: Moving Average Crossovers (Example 9 and 20 EMA)

MAs Crossover in higher timeframes:

✓ More confidence
✓ Less frequent

X Might be too late

MAs Crossovers on 1-min
(faster signal, but less confidence)

MAs Crossover in shorter timeframes:

✓ Less lag (better entry)

X More frequent
X Less confidence
MAs Crossovers on 1-min
(faster signal, but less confidence)
Reversals: Moving Average Crossovers
• When a faster moving average is crossing over slower one, it can show a sign of
reversals.
• MA crossover is known for decades and it’s a great tool, BUT in choppy price
action, it gives FALSE signals often.
• Use MA crossovers with combination of other indicators and price action analyses
such as:
• Is there a doubleton or double bottom?
• How extend is price from VWAP?
• Is market weak or strong?
• Other timeframes: 1-min, 5-min, 15-min crossover?
Understand Psychology of Price Action

What happened here?

Those who were short, got squeezed.
That’s why a multiple timeframe analysis
Is important.

What to do?
Stop out.
Flip or ride the short squeeze.
Wait for next sign of weakness.
Best: MULTIPLE TIME FRAME analysis
Multiple Timeframe Analysis
Strategy Based on MAs Crossovers:
Extreme Reversals (Booty Reversals)
• Extreme extended stocks in
play in the afternoon

1. Wait for 15-min indecision,

new 15-min weakness
2. “Double top” or “double
bottom” on 5-min
3. Look at 1-min MAs: 9, 20
EMA and 50 SMA.
Adding 50 SMA Crossover helps in more
accurate entry.

X X
Adding 50 SMA Crossover helps in more accurate entry.

X X
A Triple System
Example $BYND 24 Jan 2020
Example $BYND 24 Jan 2020
Example $MU 24 Jan 2020
More examples about this strategy
Adding Position Based on Moving Averages
Presented By:
Thor Young
Table of Contents
Introduction – How to Add to a Trade
1. Reasons to Add into a Trade
• Build a Position
• Extend a Position
2. Building a Position
• Averaging Up
• Averaging Down (Risky)
3. Extend a Position
• When is it a good time to add?
• Using MA’s to judge when to add or bail.
• Partial appropriately in preparation for an add.
• How to Calculate your add “Free Roll concept”
4. Live Examples of Adds
• Example of Extending a Trade
• Example 2 of Extending a Trade
• Example of Averaging down (Risky)
• Example of Averaging up (Building Position) and multiple
methods
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Reasons to Add into a • Building a Position – Taking a
Trade position with small risk and a wide
There are really only 2 reasons to add
stop. As the stock moves to a new
into a trade. Building a position or
extending your trade. Both concepts take
price (Positive or Negative) you add
careful planning. But if executed well it into the position and adjust your
can be a major addition to your risk
management system. stop to adjust for the new risk.
Also for those who are newer to trading;
adding can allow you to continue trading • Extending a Position – You’ve already
without having to access fresh risk. This
gives you the ability to extend or build enjoyed a solid move and have hit
your trade and control your risk with a
much more controlled stop. targets allowing you to take partials.
A final caveat before we hit this section When the stock pulls back you can
is that adding works best on a Catalyst
stock with high liquidity. The stock needs add into the position and adjust your
an appropriate spread for the price of
the stock. And preferably clean levels or b/e to extend the trade while
trends you can use. protecting your realized gains.

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Building a Position by
Averaging Up Averaging up occurs when you enter
a position and then add as the price
moves in your favor. This allows you
to enter the position with a smaller
share size and wider risk. As the
stock moves in your favor and looks
to continue in the direction you are
trading you add into the position.
You can move your stop to b/e and if
the trade fails you will wash at a
much smaller loss or no loss
depending on how much was added
and how wide the stop. I’ll detail
this process more in the examples.

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Building a Position by
Averaging down occurs when you add into a failing
Averaging Down position in anticipation of a continued move. This is a
very risky method of taking a position and should be
used only the most advanced traders. *For the record I
had to look through my journal back a couple weeks to
find this example. That’s how infrequently I will use
this method.
To do it correctly you need to take a smaller than usual
share size most often because of a wider stop. As the
stock drops but finds support above your original stop.
You can add in keeping your stop in place but
increasing your risk to a full position.
The wrong way to do this and I must stress this a ton. If
you are entering a position at full strength and then it
holds support, you cannot add. This will increase your
risk beyond what you can manage and if the pattern
fails “which it likely will” you could stand to encounter
substantial loss.
I’ll detail this process more in the examples.

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Extending a Position • When is it a good time to add?
• How do I judge the stops using
There are many things that need
to be considered before MAs.
attempting to extend your trade.
Extending your trade can be a • How do I need to partial, so I’m
great opportunity to utilize your
current unrealized profit to prepared to add.
generate better gains. Do it
wrong however and you risk
giving back more. Adding into a
• How do I know how many shares
trade to extend it does take some
precision. But follow a few basic
to take. Let’s talk about Free Roll.
concepts and you should be able
to master it in a short period.
There are some important things
to considered.

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When is it a good time to
Adding into a position is all about timing. But like
add? taking a new position you need to consider the
conditions of the market around you. Trying to
add into a long position while the market as a
whole is trending weak is not a great idea. Even in
the best of catalyst you will see the price action
struggle against the market.
Take the clip to the left. Your stock has been
consolidating for another move up while the $SPY
dropped for 5 or 10m. The $SPY starts to push up
wedges and breaks out.
If you are looking for a long; I’d recommend
taking it as the $SPY shows strength. Remember
it’s about supply and demand. And a stronger
market will naturally bring in more demand.
Add into the position as the market breaks up and
the stock you are trading makes a move to break
it’s consolidation.

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How do I judge stop
using MAs? Adding in many ways is similar to
the way you would take a new
position. Wait for a strong
indicator and for your moving
averages to move close enough to
the price to give you a tighter
RVR.

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To add you need to take
partials. In order to be able to extend your
trade you need to make sure to
take partials. This method works
best when you are already low on
shares and looking to either
extend or exit. The concept will be
using your low average cost of
your original entry to our
advantage. We can add shares
and still maintain a very
manageable b/e. I will go through
a couple of examples shortly.

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To add you need to take
Now that we see the application the question remains
partials. how many shares do I add in and how to I calculate
that. Here is a simple method I like to use called a
“Free Roll” It’s called a “Free Roll” because it pretty
stress free for trading. What it requires is for you to
utilize your remaining unrealized and roll into a new
position. Your risk with be a new b/e based on your
average cost. If the add fails you lose your unrealized,
while your profit remains safe.
For instance: You have a 100 shares at an average cost
of 80.00 and the stock moves up 1.00 and you sell half
of your shares for a profit of $50 leaving $50
unrealized. The stock moves up another .50 and you
drop another 25 shares leaving you with 25 shares
total with an unrealized of appx $50 and you’ve
captured around $150 in profit. Now the stock does a
pull back to 81.00 and hold so you add into your
position. You have about $25 of unrealized so you add
in 25 more shares. At 81.00 giving you a new average
cost of 80.50 and you now have 50 shares. As the stock
moves back up you now have position you can hold
and dump at the first sign of weakness. Never
increasing your overall risk.

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Example of Extending the Trade using an Add

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Example 2 of Extending the Trade using an Add

60
Example of Adding by averaging down

61
Example of a trade using multiple add concepts.

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