Trading the 50-Period Moving Average (50EMA or 50SMA) -- with David Moadel
hello and welcome to looking at the markets with David Modell today we're
going to talk about trading the 50 period moving average and before I get
started I just want to let you know that if you need more help if you want some
help putting together a trading or investing
plan I do offer coaching you can email me for the coaching at David Modell at
gmail.com so let's get into it trading the 50 period moving average
first I want to talk about the SMA versus the EMA what's the difference
when using the 50 period moving average if you prefer a true moving average with
equal weighting or importance given to the last 50 candlesticks closing prices
then you can use the simple moving average or SMA if you prefer a weighted
moving average with more importance given to the most recent candlesticks
then you can use the exponential moving average or EMA so which 50 period moving
average should you use it's up to you whether you want to have more importance
given to the recent price action or whether you want all of the last 50
closing prices to be equally important now the ideas that we're going to be
talking about here can be applied to any timeframe one-minute candlesticks 2
minute 5 minute candlesticks 1 hour one day one week etc ok
so no matter which timeframe of Candlestick you use these ideas I'm
going to be speaking about could possibly apply for any of them ok
but you know whatever you do please be aware that I don't necessarily agree
with these ideas everything I'm going to be saying today I don't necessarily
agree with them they're just very popular ideas that a lot of people
believe in and I want to relay them to you so that you can decide for yourself
whether they're good or not ok so I don't necessarily agree with these ideas
but they are very popular and you could them out with demo trading where you're
not using any real money to see if they work for you okay
so please do not just start using these ideas with real money okay try them out
with demo or virtual trading first for a while see if they work for you and
always respect your stop losses and use later on if you choose to use real money
make sure you use very small amounts of money okay and those stop losses will
also help you to not lose too much hopefully okay no guarantee is there
though alright but start out with demo trading to see if these or any ideas
work first before you really try them out with real money okay so concept
number one with the fear 50 period moving average one if the most recent
candle stick on the chart is above the 50 period moving average then the bowls
are in charge so only be a buyer never be a seller and never go short when the
candle is closing above the 50 period moving average all right so let's take a
look at that I'm going to look at trading Viacom and I'm going to look at
in at a chart of the daily candlestick chart one day candlestick chart of Apple
stock okay so as you can see the most recent candlestick is above definitely
above the 50 period moving average and I chose to use the EMA by the way instead
of the SMA but as I mentioned they're both fine it just depends which one you
want to use so it's above and so the idea here the popular idea here is that
you only want to be a buyer whenever the candle has closed above the line above
the 50 period moving average okay never you know the idea is don't be a
seller or a short seller here and if you go back with the candlesticks you may
notice in many instances that when it is above the line I'm not saying that the
line is magic or anything but there are instances when you know when it's above
the line and if you went long if you bought you
would have done quite well it just kept going and you could hold on to it right
you could have held on to it until it came back below it alright it does not
happen like that every time but that is an interesting way to let your winners
run or at least not to be on the wrong side of the trade that's the idea here
okay according to this method all right as well you know as long as it's above
the line don't be a seller be a buyer or hold on to it that's the idea okay
number two if the most recent candle stick on the chart is below the 50
period moving average then the Bears are in charge so only be a seller or short
seller never be a buyer okay and so the most recent candlestick for Apple here
is not below but when it was below then it's interesting it came below here
retested it but came below again and it would have been a good period to sell or
to go short because it kept going down okay it does not happen like that always
but you know it's an interesting idea that when the candlestick closes below
the line then these sellers are in charge and you don't want to be a buyer
according to this method on the other hand there are always two sides to every
story right on the other hand the farther away you move from the 50 period
moving average the more likely it is that the price will snap back to that
line that's an interesting concept so yes when it's above the line according
to this method you don't want to be a seller you want to be a buyer but when
it gets really really far above the line so let's take a look when it starts to
get really stretched out when the distance the white space between the
line and the candle starts to get wider and wider then the more likely it is
that's going to snap back to the line alright so the distance was narrow here
but it got really wide here between the line and the candle and pretty soon
afterwards it snapped back the candles snapped back
to the line to the 50 period moving average okay so if it gets really
stretched above okay and also to the downside look at this when the candle
was far below this candle closing price was far below the line and snapped back
to the line that's really interesting okay so to repeat the farther away you
move from the 50 period moving average the more likely it is that the price
will snap back to that line all right so if it's far above do you want to be a
seller no not according to this method but you may want to take some profits
you might not want to be a buyer at the very least because it's so far above the
line you see which means that soon maybe it's going to snap right back down to it
it might be overextended or stretched or exhausted the move could be just
exhausted therefore these are some conclusions for if the candlesticks go
below the 50 period moving average but then go back above it that could be a
time to consider buying okay and as you can see an apple stock alright let's
take a look Apple stock went below the 50 period
moving average but then came back above it so that could be a time to get in it
might retest it okay and sometimes you're going to get stopped out all
right but as you can see back here when the price of Apple stock here it is went
went below the 50 but then went back above it okay and then you stayed in the
trade it tested you here but it didn't go below it and you just stayed in the
trade you could have done pretty well right number 5 but after that if the
candlesticks get stretched far above the 50 period moving average which we talked
about it might be due for a snap back to the 50 period moving average okay when
it goes too far above when there's too much space too much white space between
the candle and the the line there it might be due
to snap back soon to the line might might go down therefore that could be a
time to consider selling okay so on one hand you don't want to be a seller above
the 50 unless perhaps it goes so far above the 50 and there's a lot of space
there that maybe if you took a long position when it first went above the 50
and you did well maybe it's time to consider taking some profits because you
don't want to be greedy because it might snap back and number six if you see
other exalt exhaustion signals such as diminishing volume okay let's say you
know I don't have the volume bars on here but if you had volume here okay
it's going up up up there's a wider and wider space now between the candles in
the line and you see the volume bar start to go down down down at the same
time maybe the buyers are starting to get exhausted okay maybe it's time to
consider taking profits or other exhaustion signals such as a you know
diminishing volume or a doji candlestick something like that you can look at
these shapes of the candlesticks like like here's a doji right here isn't that
interesting look at that do I know if you could see it but there's a doji
candle there's hardly any body all right it's like a flat body on the candle and
there's an upper and lower wick kind of interesting maybe that's a reversal
signal alright that could be considered confirmation that maybe it's time to
sell or at least take partial profits or full profits okay so those are some
concepts for trading the 50 period moving average
whatever you do test it out with demo trading make sure it works for you
always use small position sizes respect your stop losses be safe don't get
greedy okay and you know I don't necessarily believe all the things here
it's just ideas that I'm trying to relate to you I'm going to keep on
bringing you ideas and if you want more coaching more more personalized help
with your trading or investing you can contact me by email at David Modell at
gmail komm for the coaching thank you so much
for watching and listening I will talk to you again soon