Day Trading Moving Averages Strategies

Trading strategies are formed using two techniques – fundamental analysis and technical analysis. While the former is more applicable in Forex trading, the latter is applicable in almost every type of trading market, especially when you are day trading (Learn more about the number of trading days in the year.) As the name suggests, technical analysis is inclined towards aspects like price movements. Traders use different tools and techniques for this. One of the tools used by traders for technical analysis is the moving average or the MA. The MA constantly updates the average price, hence, smoothing out the price data. This average is taken over a specific period of time, like 10 days, a few minutes, 20 weeks, or any time period the trader chooses.

While the MA is not considered a comprehensive tool, it can definitely tell you about the market trends. Traders can also speculate possible reversals with the help of the moving average. It allows traders to get entry signals. On a few occasions, the MA can act as resistance or support levels as well.

The best day trading moving averages strategies are based on simple and exponential moving averages that use the most common periods, such as 10, 20, 50, 100, and 200. These moving averages periods are used in strategies by big corporations, banks, hedge funds, and prop companies, which influence the world market. For example, traders know that when price breaks, SMA200 on the chart usually can be seen as a strong price reaction – accelerated trend or retracement.

The majority of traders use daily charts, and these MA strategies can be applied easily. Day trading strategies usually use M1, M5, M15 M30 chart time frames, and on these timeframes can be applied MA periods such as 10,20,50,100 as well.

Day Trading Moving Averages Strategies

The moving averages work in two ways; they function as indicators and provide a foundation for tools like the MACD. The SMA, short for the smallest moving average, is one of the simplest tools based on the moving averages. It considers the averages of price values during a period of time. A 30-period SMA line denotes the average of the last 30 closing prices. There will be 30 points on the chart, representing 30 individual price points. The SMA line will be formed by joining these points. This line can help a trader to identify the price volatility.

Predicting the current price trends using the SMA line is one of the simplest yet effective day trading moving average strategies. The upward moving SMA line reflects an upward trend, while a line that goes down shows that the prices are falling. Once you can identify the trend, it is easier to choose which side you will be on while day trading. The SMA line saves time and confusion as it clearly reflects the trend, and traders don’t have to get stuck calculating numbers.

The SMA Trading Strategies

Despite being a simple tool, the SMA can be beneficial for day traders. You can easily see the price volatility and the on-going market trend and make reliable trading strategies. This is how you can use the SMA:

  • Day trading moving average crossover strategy:

One of the most common strategies that traders use is the 200-SMA and the 50-SMA crossover strategy. This strategy is used to look for signals to enter the long position. The trader can enter a long position when the market shows the golden cross. This happens when the 50-SMA crosses over the 200-SMA. If the opposite happens where the 50-day SMA falls short, traders get the signal to sell their securities. This situation is referred to as the death cross, and traders develop exit strategies when this happens.

The crossover strategy is popular among long-term traders. Some of them use the 10 or 20-day SMA lines too. Traders are advised to never rely on one SMA. Select two related SMAs like the 30-day and the 60-Day SMA. This pair is a common choice. Even with this pair, and in all the other double series averages, the same rules will be applicable. If the short-term SMA, the 30-day SMA in this case, crosses above the long-term SMA, you have the golden cross, and if it crosses below the long-term SMA, you have the death cross.   

The word of caution here is that this strategy can lead to a delay. Many skeptics find tools that are based on averages lagging. According to them, since this strategy uses two such tools, the result can be less than perfect and slow.

  • The mean reversion

Bollinger Bands®, a technical indicator, is made up of three bands. It is used as an indicator, especially when the middle line represents a 20-day SMA. This strategy focuses on the trending markets and their tendency to return to the starting values before moving in the direction of an established trend. This is a popular strategy, and the Bollinger Band can act as a resistance or support level. It can help you in deciding whether you want to hold a buying position or a selling position.

This example will help you understand it better. Let’s assume that the prices fall below the 20-SMA. This denotes that the sentiments are now bearish. A bearish market supports selling, and traders can use this information to strategize accordingly. Here, the Bollinger Band’s upper side can be used as a good place where you can place a stop-loss. 

When this price fall reaches the lowest band, instead of selling, the traders may enter the long position as the chances of a reversal are highly likely. Similarly, if the prices touch the top band, you can prepare yourself to go short because the prices will likely decline now. In both cases, the prices come back to the middle band.

The mean reversion strategy suits the range-bound market the best. One must remember that just because the line has touched the upper band or the lower band, you will immediately go into a short position or a long position, respectively. You can use other tools as well.

  • Oscillators and countertrend trading:

You can use the SMAtoolk to counter the primary trend. If the current market price is below the 200-day SMA, it is safe to assume that the market is showing a downward trend and vice versa. To get more clarity, traders can introduce another trend-following filter, like a 20-day or a 30-day MA.

If the 20-day MA moves above the 30-day moving average, with the current closing price above the 200-day MA, it is considered signifying an upward trend. The opposite is true for the downward trend. Once the trend has been identified, you need to choose a countertrend oscillator to work for your strategy. Oscillators can help you figure out where the short-term price pullbacks might be in a longer-term trend.

Let’s assume that we have two SMAs, a 3-day SMA (denoted by A) and a 10-day SMA (denoted by B). Both A and B denote closing prices. Our oscillator can be A-B. The oscillators build a trend indicator by fluctuating between the two extremes. The upper extreme sector reflects an overbought market, while the lower extreme sector reflects an oversold market.

All these results can help the trader find out the pullback signal in a long-term uptrend. Here the prices are likely to move upwards.

  1. The recent closing price lies above the 200-day SMA
  2. The 10-day SMA crosses over the 30-day SMA.
  3. The present oscillator value is more than the previous day value.

Here, you can see an uptrend, but traders might be cautious about entering a long position. Countertrend trading strategies are considered highly risky. If you are a new trader who wishes to give it a try, test it on a demo account first.



Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on:

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