Leading Stock Indicators
Moving Average Leading Stocks Indicators
A stock trader can choose a moving average based on the stocks trading chart time frame that he is trading; the stock trader might choose to use this Moving Average indicator on the minute stock charts, hourly stock charts, day stock charts or even weekly stock charts.
The stock trader can also choose to average the closing stock price, opening stocks price or median stock price.
Moving average stock indicator is a commonly used indicator to measure strength of stock trends. The data is precise and its output as a moving line can be customized to a stock trader's preferences.
Using the stock trading moving average is one of the basic ways to generate stock buy and sell trading signals which are used to trade in the direction of the stock trend, since the Moving Average indicator is a lagging indicator and a stock trend following indicator - this means that it will tend to give late stock entry signals as opposed to leading stocks trading indicators. However, as a lagging stock indicator it gives more accurate stock signals and is less prone to whipsaws compared to leading stocks trading indicators.
Stock Traders choose the moving average period to use depending on the type of stock trading they do; short-term stock trading, medium-term stocks trading and long-term stocks trading.
- Short-term stock trading: 10 - 50 MA Period
- Medium-term stock trading: 50 - 100 MA Period
- Long-term stock trading: 100 - 200 MA Period
The stocks price period in this case can be measured in minute stock charts, hourly stock charts, day stock charts or even weekly stock charts. For our example we will use 1 hour stocks trading chart time frame period.
Short term stock trading moving averages are sensitive to stocks price action and can spot stock trends signals faster than the long term moving averages. Shorter term stock trading moving averages are also more prone to whipsaws compared to long term moving averages and a stock trader should choose a stock price period that will generate a stock signal early but not give too many stock trading whipsaws.
Long term stock trading moving averages help avoid stock trading whipsaws, but are slower in spotting new stock trends and stock trend reversals.
Because long term moving averages calculate the average using more stocks price data, it does not reverse as fast as a short term stock trading moving average and it is slow to catch the changes in the stocks trend. However, the longer term stock trading moving average is better when the stock trend stays in force for a longer time but may also give late stock signals.
The work of a stock trader is to find a moving average period that will identify stock trends as early as possible while at the same time avoiding fake-out signals (stock trading whipsaws).