Simple moving average crossover day trading strategy. / Intraday stocks indicator method best moving averages tutorial alert cross explained RSI MACD make money options david moadel
welcome to looking at the markets with
David Modell today I wanted to give you
a very simple moving average crossover
day trading strategy so let's take a
look right now I'm on Google Finance and
I typed in Priceline okay so you can
type in a stock name and/or symbol and
it'll give you the chart and you're
going to want to make some adjustments
after you get your chart okay
I'm going to go down and I'm going to
click on settings and if it's a line
chart we're going to change it to
candlestick chart and the reason for
that is because a line chart can get
very confusing if you have two moving
averages there and the current current
price is also represented by a line you
get a lot of lines there and that could
be very confusing now if this works for
you that's fine but for me I want to
avoid the confusion so I'm going to use
a candlestick chart and I'm going to put
the interval at two minutes so there you
go I'm going to click on two minutes and
so each candlestick represents two
minutes of price action today
now you have two moving averages on
there and so we're going to go to
technicals and I'm going to click on
simple moving average SMA and I'm going
to make it the five period then I'm
going to click on simple moving average
again for the next one SMA and put on
the ten period moving average and so
you've got the five period moving
average and the ten period moving
average simple moving average
and so here we have the red line is the
slower I'm sorry the red line is the
faster moving average which is the five
period simple moving average and the
green line is the slut is the slower
moving average and that's the ten period
simple moving average and so when the
red line clearly crosses above the green
line that can be a buy signal and I'm
not telling you what to buy or what to
sell I'm not telling you what to do you
have to make your own decisions this is
just an idea of what I might do for day
trading okay and what's great about this
method is that you could enjoy some run
ups here alright and so I like to buy
when the red line the the slower I'm
sorry the faster moving average crosses
above the green line the slower moving
average then that could be a buy signal
now it has to clearly break above it
sometimes they're just kind of you know
overlapping each other kind of just
moving together on top of each other no
you want a clear break where you can see
there's a little bit of space between
them so when it breaks above it or
crosses above it that could be a buy
signal and then you can hold on to it
and don't sell until it clearly crosses
below it till the red line clearly
crosses below the green line and then
you can sell it and if you did that here
you would have enjoyed this run up
all right now here we can see it's just
kind of on top of each other that's not
a clear signal all right but here we
have a clear signal all right it the red
line broke above it and then here it
broke below it so you could have bought
here and sold here you wouldn't have
made much profit okay but you wouldn't
have lost anything either and then here
it clearly broke above it and then broke
below it again and so you would have
just about broken even here all right
but at least you would have avoided this
big down move okay and so that's a big
advantage that's a huge advantage of
this method is that you get to enjoy
some up moves and you avoid down moves
and you also avoided this big down move
over here all right
because before most of the down move
happens the the faster moving average
will cross below the the slower moving
average in other words the five will
cross below the ten usually at the very
beginning of a Down moving it so you can
invoke you can avoid the down moves and
you can enjoy the up moves another big
advantage of this is that it is day
trading and so what that means is that
you must close your position at the end
of the trading day no matter you know
even if it's going up down sideways
doesn't matter close out your positions
at the end of the or before the end of
the trading day that way you don't have
to worry about overnight gaps you don't
have to worry about a big down move
happening overnight and so you you don't
have to worry about things that swing
traders and long-term buy-and-hold
investors have to worry about such as a
50% market crash like what happened
in 2008 or 2001 you know there were big
big 50% uh market crashes okay you don't
have to worry about that so much
happening it's a lot less likely to
happen to you if you're close your
position out at the end of every trading
day all right
and also it probably won't happen to you
if you follow this method exactly
because again at the beginning of every
down move you're getting out of your
position you're selling alright and
you're not worrying about overnight gap
downs either because you're closing your
position before the end of every trading
day all right and so this is something
you want to do with stocks that move a
lot that if you have big down moves and
up moves if it goes you know down up
down up like like Hills like rolling
hills then you do well because you avoid
the down moves and you benefit from the
up moves you don't want to do this on
something that just tends to go sideways
all day because as you can see you
wouldn't have really profited much from
this sideways action over here in fact
you would have run up some commission
costs and not really profited much if at
all you might even you might have even
lost a little bit of money from
Commission costs over here from this
sideways movement okay you really
benefit the most from the big up moves
alright and so this is a method for
underlyings you know in other words
stocks ETFs commodities whatever
currencies commodities that
the tendency to chop up you know make
big chops up and down alright and so
maybe it's not so great for things that
go sideways don't move much thinking of
coca-cola I'm thinking of General
Electric I'm thinking of utilities
stocks things like that those tend to
just not have massive movements all
right you can also do this with options
so you're going to be watching the
underlying stock and for example at this
break you know the the break of the five
above the ten you could have bought in
at the money call option you want to be
really careful because options you know
the prices can move very quickly and so
you want to use small position sizes
very small position sizes small amounts
of your accounts for every one of these
trades and you also probably want to use
a low cost broker because you're going
to rack up a lot of Commission costs
with this method alright because you're
going to be doing it over and over and
over I've also noticed that the biggest
moves tend not to happen in the middle
of the day Priceline is a perfect
example you'll see in the middle of the
day you get the least amount of movement
and so you may want to take a lunch
break around twelve o'clock noon
alright or in the middle of the trading
day whatever time that is in your time
zone some people recommend avoiding the
first half hour of the day that's not a
bad idea because there is a lot of
unpredictability then and so that's a
thought but that may not apply to you it
depends on the underlying alright the
most action tends to happen excuse me in
the beginning of the day and toward the
end not in the middle as we discussed
already all right
and finally you may want to use the
exponential moving averages instead of
these simple moving averages because
with the exponential moving average that
gives more weight more weighting in
toward the more recent price action as
opposed to the simple moving averages
which is more of a true or you know
steady moving average it's just a it's
just simple you just add up the you know
the price action and then divide all
right whereas with the exponential it's
it's not as true of a moving average it
gives more of a weighted average
weighted toward recent price action and
so some people swear by the exponential
moving averages the problem for me is
that notice this is the exponential
moving averages the 5 and the 10 notice
how close the lines are together you
don't get as much of a clean break
alright and yeah they're so close
together it's hard to really tell what's
going on possibly whereas with the
simple moving averages you get a little
bit of more space a little more room
between them and so you get a cleaner
break okay and so they're not on top of
each other as much alright so these are
all things to think about but if you
prefer the exponential moving average
that's fine if you want to put a little
bit of space between the moving averages
so you get a cleaner break you may want
to put a little more space between the
numbers for example instead of the 5 and
the 10 you might want to go with the 5
and 13 for example
and as you can see there's more space
more room between the moving averages
and so you get a cleaner break let's say
we do the 15 you get an even cleaner
break the problem with that is you don't
get as many crosses and so you may miss
some opportunities like for example here
you know you get long periods longer
periods of time without a cross but on
the other hand that may that may reduce
your commission costs because you get
fewer false signals all right but you
can do get a cleaner break with that so
if you don't want to make as many trades
that may be the way to go as for me I'm
fine with the 5 and the 10 I don't mind
them being a little closer together I
don't mind making more trades because
I'm using very low cost of brokers all
right and so these are just things for
you to think about ideas that may work
for you and there is a neat little and
very simple simple moving average or
exponential if you prefer crossover
method for for day trading all right so
use a low-cost broker and just be very
watchful this is you know this day
trading method unless you take a break
in the middle of the day you almost have
to watch it all day
you have to keep tabs on it all right
and so that's another disadvantage it's
not for people who want to step away for
long periods of time from the markets
all right so I hope this is helpful for
you and if you like this video please
give it a thumbs up on YouTube and leave
comments and please subscribe to my
youtube channel so you can receive the
latest updates on my financial
educational videos and if you need more
help if you want some help putting
together trading or investing plan or
looking at moving averages or other
technical indicators you can email me at
any time my email address is David
Modell at gmail.com thank you so much I
really appreciate it and I'll talk to
you again soon
you