1: Is there a universal parameter setting for moving averages?
2: How to use moving averages to help us achieve a threefold return
I hope everyone spends 5 minutes
After reading this article
Finally, there are some inspirations
Let's get started! $
1: The secret of moving averages
What is a moving average?
The concept is easy to understand
As the name suggests, it is the average price over a certain period
Visualized with a line chart
Common moving averages come in three types
SMA (Simple Moving Average)
WMA (Weighted Moving Average)
EMA (Exponential Moving Average)
SMA simply divides all prices directly
To get an average
It reacts relatively slowly to recent prices and market trend changes
The concepts of EMA and WMA are similar
It's just different algorithms
They tend to have more weight
So the speed of adaptation will be faster
It will be more sensitive to recent significant price changes
1: Is there a universal parameter setting for moving averages?
Actually, regarding moving averages
The most common question is whether moving averages have a universal parameter
What is the best parameter?
20? 50? 100 or 200?
This question is like going to a coffee shop
Tell the staff:
Please give me a cup of coffee!
The staff asks you:
Sir
What coffee do you want?
I said I don’t understand these
Just give me the best coffee you have
Generally, when you get here
Encountering an impatient staff member
Will casually give you a cappuccino
You pay
Then leave
It's just like some online classes tell you
What do you use 144EMA and 68EMA for?
What 68 crosses the 144 EMA you just buy or sell
It's completely baffling
On the contrary
Those responsible and patient staff will slowly guide you:
Sir
Do you want iced coffee or hot coffee?
Do you want coffee with milk or without milk?
Cappuccino foam is relatively soft
Mochachino has chocolate syrup and is a bit sweet
Espresso is rich in oils and has a lingering sweetness
If you like black coffee, you will definitely be satisfied
Similarly
As a responsible and patient trading coach
I will ask
What is your purpose for using moving averages?
Do you want an objective indicator to judge the long-term trend?
Or do you want to strive for a better entry point?
Or do you want to use moving averages to set a stop loss?
The above few things
Actually, it can all be done with moving averages
But here comes the point
I can responsibly tell everyone here
There is no best moving average parameter setting in this world
Only the most suitable parameter settings!
And this parameter should not be determined by you or me
Any person decides
What determines this is the market itself
According to different market conditions, different trends, and strengths
The most suitable parameter settings will also differ
We will judge based on these two words
Which period's moving average
Most suitable for this market
These two words mean
Follow the rules
Here
I will use the three most common moving average periods of 20, 50, and 200 as examples
Let’s look at examples of the above three parameter settings being followed by the market
Let's switch to the 50 and 200 period moving averages
Let’s do a comparison
Do you see the difference?
Each side verifies
The market is currently in a strong trend
Because the 20-period moving average is most suitable for a relatively fast
And the trend with a relatively small retracement
The second example
I use the 50-period EMA
Similarly, we see the market is following the 50-period moving average
This situation represents the market is in an upward trend
If we look at the 20 and 200EMA
You will find it’s not very suitable for 20EMA
Because it constantly intersperses between prices
200EMA is too far from the price
The last example
200EMA
200EMA is more suitable for a long-term and relatively weak trend
Although the intervals between price touches are relatively far
But from a macro perspective
The market is currently following the 200-period moving average
Overall speaking
Continuing to move towards an upward trend
We open the 20 and 50 EMA to take a look
Seeing them both interspersed like fools
In a relatively slow or visually hard to distinguish trend
200EMA is a good choice
I don't know the above knowledge
Has it inspired everyone?
2: How to use moving averages to double profits
Next, I will talk about the second one
More questions that friends care about
This is how we can use moving averages to improve our trading
Here I will split it into two things
First: Use moving averages as a filter condition
Second: Use moving averages to find a better entry opportunity
To achieve a better risk-reward ratio
Just now we mentioned
Different period moving averages can reflect varying strengths of trends
20, 50, and 200 EMA moving averages
Representing short-term, medium-term, and long-term market trends
Here I will take long-term trends as an example
That is to say, the example of 200EMA
If the price remains above the 200EMA
We can judge that the long-term trend is upward
If the price is below the 200EMA
We can judge that the long-term trend is downward
Of course, this is just a very rough judgment method
The best is of course using Price Action (price action trading method)
But for beginners
Price Action (price action trading method) is relatively complex
So I suggest everyone to learn Price Action (price action trading method) before
Can temporarily use a 200EMA as a filtering function
Filter out a portion of trades that conflict with market trends
(Of course
I will also update the courses on Price Action in the future
Don't forget to pay attention in time)
I don’t mean to say that counter-trend trading cannot be done
Counter-trend trading can also be very profitable if done well
But trading against the trend has a low win rate
The relative requirements are higher
Understanding the market requires a deeper insight
Friends with little experience
I hope you all learn to do trend-following trading first
Try to follow the market's overall direction in every trade
Let’s look at this example
Price is above the 200EMA
Assuming I see a sell signal
Go short
According to logic, my take profit should be set at the 200EMA
On the contrary
Assuming I make a trend-following trade, going long
My profit margin is much larger
Can always reach the next key level of the market (which is the main support/resistance level)
Generally speaking
Before the market reaches the resistance point
Trend-following trading is the best choice
It's just like the current BTC market situation
From $1800 to $20000
From $20000 to $30000
From $30000 to $40000
Wait---
Nobody knows where the top is
Then we should not guess the top
The second thing
How to use moving averages to find a better entry opportunity and achieve a better risk-reward ratio
How to ride a big trend
Here I will compare two types of moving parallel line trading methods
They are golden crosses and death crosses
And
The interaction between price and moving averages
I personally think the most logical trading method is to observe the interaction between price and moving averages
The same chart
Two different trading methods
The same stop loss point
The same take profit point
Because of different entry timings
The results obtained are two different things
On the left is the signal when the 20EMA crosses down through the 50EMA
The entry's risk-reward ratio is 3.65
On the right is how the price interacts with the 20EMA for entry
The risk-reward ratio is 8.32
Ah!
Did you see that?
This situation, although I deliberately selected it to be an example
But similar situations will continue to appear in the market
Let's look at the example of the left side death cross
20EMA crosses below the 50EMA
Here use a high point for the stop loss
Assuming we are very good at it
Can ride the entire trend
The return we get for every dollar risked is 3.65 yuan
Let’s look at the example of price interacting with the EMA
Other conditions remain unchanged
Because we see that the price made a false breakout at the 20EMA
At the end of the next candlestick, a bearish engulfing candlestick pattern appeared
We entered the market two candlesticks earlier than the death cross
React a bit faster
The returns will be even greater
Did you understand?
All conditions remain unchanged
As long as you have a better entry opportunity
And you will have a better risk-reward ratio
At the critical moment, you only need to win once
It can offset several of your failed trades
Only in this way, over time
Only then can you make money
Make a lot of money
Playing short-term trades back and forth
Very few can make money
And it's also very tiring
So
For beginners
I sincerely advise you
There are hundreds of technical indicators on the market
You really don’t need to learn everything
Too greedy leads to poor results
You just need to choose one
Deepen your understanding
Master it
It's completely sufficient for your needs
I have seen too many experts making 100% profit just by relying on candlesticks
Countless
Next
Let's look at another example of price interacting with moving averages
This is a 200EMA
Within this approximately one-month cycle
We see that the price only had two opportunities to touch the moving average
That is to say, we only have two trading opportunities
The first time we see a false breakout at the 200EMA
Bearish engulfing pattern
And we see the shadow lines telling us
The price once tried to go up but was rejected
The second time we see the price making two false breakouts near the EMA
Add a double top pattern
Similarly, we are entering the market to short
Just like the first time
The results are all good
The previous two were through the interaction between price and moving averages
An example of achieving a relatively good risk-reward ratio
You should know that moving averages are actually dynamic support and resistance levels
Whenever the price pulls back to this key level
We only pay attention to see if there are opportunities to enter the market
Trades made at this type of position
Usually, it can achieve a good risk-reward ratio
This is a moving average trading method that I personally recommend
But when we open the 20EMA and 50EMA for comparison
Within this period, there were three trading opportunities
A rough look shows there were two profitable trades
Once it is a loss
Sounds pretty good
But let's look a bit deeper
You will find that the risk-reward ratios of the two trading methods are not comparable
The final profit differs by more than double
Do you understand now?
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