Moving Averages

Hey guys, I have a question, what indicator should I use to supplement my moving averages when they are range trading. As you can see from the blue highlighted boxes in my screen shot, moving averages aren't very useful when price action is range trading. the red and green arrows are giving me a ton of buy/sell signals. I'm guessing I could use adx to tell me that the trend is weakening and moving into ranging price action and just avoid trading until trend strength increases. Thanks for the help guys!

well for one, volume is helpful, why was it omitted from this screenshot, generally when things are rangetrading sideways volume is low and you know that a trend isnt about to break out

when im trading solely from a MA, a very important criteria is either high volume or a sizeable increase in volume over the past 5-15 minutes

thanks wildshoetwt, I always have volume on my charts. Thanks for the tips!

TASK said:

Hey guys, I have a question, what indicator should I use to supplement my moving averages when they are range trading. As you can see from the blue highlighted boxes in my screen shot, moving averages aren't very useful when price action is range trading. the red and green arrows are giving me a ton of buy/sell signals. I'm guessing I could use adx to tell me that the trend is weakening and moving into ranging price action and just avoid trading until trend strength increases. Thanks for the help guys!

Click to expand...

Not to sound rude or anything but you should look at what MA and ADX do. They are BOTH trend following indicators. In range bound market you are by definition NOT trending. Here you need to use oscillators. There are a nimber to choose from so take your pick...Stoch, RSI, MACD Histogram, Lower time frame MA crossovers. I prefer a lower time frame's MA crossover. If you normally trade daily charts then look at the MA crossover on 60 min chart. This will act as an oscillator. Or look at daily chart's Stoch, or MACD Histogram. All 3 of these should match closely. Pick ONE.

In my opinion, to trade well you need ONE of each of the following:

1) Trend Indicator
2) Oscillator
3) Volume Indicator
4) Sentiment indiator
5) Support and resistance levels

Good Luck

Heres a better screenshot, with volume

You want to get 2 moving averages and use their intersection as an indicator, just using Think or Swim's "Study" where it shows you where to enter isn't very helpful, though sometimes it is SPOT ON.

Try using Think or Swims MovingAverage2lines or MovingAverageCrossover, adjust the days on the lines until they seem to be very representative of the trends in your market.

This will help you 2 ways: You won't be using a computer to decide your entry points.

And also, you'll start to see the relationship between moving averages and price action.

Moving averages are pretty worthless when they are flat or have a low slope/derivative. The steeper the moving average seems to be pointing the more strong the signal.

Using Moving averages for entry points, you need to think in terms of Price Movement/Time

For instance you need to figure out what the slope of the movingAverage is generally at the beginning of uptrends and downtrends, that slope is measured by PriceAction over Time.

As you can see it appears that a good signal for entry is anytime the moving average has moved up or down 0.15 or more in a span of about 5-10 minutes.


But like the guy said above, you need alot more here than just a MA and volume. Get an oscillator, and let see some support on those downtrends and uptrends, those will also help you gauge when things are breaking out of range, when Support or Resistance is broken and your MA is on the run in the same direction it'd be a good time to enter, if you're solely trading MA.

Definitely do some reading on using some more technical analysis. Moving Averages are good but if you just trade them you'll wonder why you're breaking even but never making a profit or loss, it's because you're basically trading the average.

eegozi said:

Not to sound rude or anything but you should look at what MA and ADX do. They are BOTH trend following indicators. In range bound market you are by definition NOT trending. Here you need to use oscillators. There are a nimber to choose from so take your pick...Stoch, RSI, MACD Histogram, Lower time frame MA crossovers. I prefer a lower time frame's MA crossover. If you normally trade daily charts then look at the MA crossover on 60 min chart. This will act as an oscillator. Or look at daily chart's Stoch, or MACD Histogram. All 3 of these should match closely. Pick ONE.

In my opinion, to trade well you need ONE of each of the following:

1) Trend Indicator
2) Oscillator
3) Volume Indicator
4) Sentiment indiator
5) Support and resistance levels

Good Luck

Click to expand...

Thanks for the tips, I'll try them out!

Two MAs give you simple cross-over system. 3 MAs refine it. For an Oscillator you may use MACD. Slow Stochastics is good for ranging markets but Trending markets present a problem so avoid using them when there is strong trend present.
How to know when market is Trending ? A rising ADX will tell you that.

Choose a Time frame that suits you from money management angle - small TF: small profits and losses. Big TFs, guard agains losses overtaking your methods - cut losses short.

When to go Long or Short ? Try Medium length MA 30 -75 : if prices are above go long, if they are below, short.

If you keep Trading simple, you will make money.

Lots of ways to use MAs in text books and on the web, not just 2 MA crossovers, but general principles are: always set a stop-loss as MA systems tend to give many signals that turn out to be false; for the same reason keep position sizes to a low percentage of your account; not normally good to use the reverse of the MA entry signal as your exit signal, regardless of precise methodology, as these are lagging indicators, and getting in late is not great but getting out late will eat up your capital; set an order to close your position and bank your profits when price hits a realistic level.

Haven't bothered reading the replies.

Can you have your chart software draw lines that run alongside the MA ie offset by a number of pips such that if the price is within the two lines that surround the MA, you consider the market to be ranging?

I know you can do this with MT4.

shadowninja said:

Haven't bothered reading the replies.

Can you have your chart software draw lines that run alongside the MA ie offset by a number of pips such that if the price is within the two lines that surround the MA, you consider the market to be ranging?

I know you can do this with MT4.

Click to expand...

I don't think that feature is available on Thinkorswim

shadowninja said:

Haven't bothered reading the replies.

Can you have your chart software draw lines that run alongside the MA ie offset by a number of pips such that if the price is within the two lines that surround the MA, you consider the market to be ranging?

I know you can do this with MT4.

Click to expand...

Just for clarity,....If a price is between 2 MA it does not mean the market is range bound. Only when the MA cross up and down numerous time will you know,....obviously this is a lagging indicator. However, before that happens the longest MA of the 2 will flatten out signifying a possible end to the trend. Also when using MA cross overs as a signal if you choose a relatively short pair like EMA 5,13 they will cross and signal the end of the trend pretty early. Depending on your time frame you may get whipsawed a bit. Longer timeframe MA crossovers work quite well ,...like on daily and weekly charts.

There are MA channels that can be drawn around a MA (Price channels and Keltner channels for instance)

I often use ADX as a second indication of the trend. If you like MA crossovers (like I do) then you would benefit from looking at ADX at least periodically while in a trade that is trending. When ADX goes below 25 this is a signal that you should use an oscillator (like Stoch for example) instead of a trend indicator (like MA) to tell buy and sell signals.

Good luck.