Using the 5 & 12 Period Moving Average Crossover with David Moadel
welcome to looking at the markets with David Modell hey friends how's it going
I'm gonna do an intermediate or somewhat advanced video here I'm not going to go
in-depth on what a moving average is or anything like that I have videos on that
and you can watch that I have a whole library how videos that you can watch
and of course you can contact me at any time if you would like some help with
moving averages reading charts candlesticks all that stuff my name is
David Modell and you can email me at David Modell at gmail.com
alright so people ask me what moving averages do I like I usually start
people off with the 5 and the 12 and if you're a day trader you might want to
choose the EMA exponential moving average because it gives more weight or
importance to recent candlesticks and if you're a day trader you're probably more
concerned with what's happening right now or very recently as opposed to what
happened a long time ago but if you're a swing trader if you're going longer-term
it's a personal choice whether you you choose to use the the SMA the simple
moving average which is a truer average it gives equal weight or importance to
all the candlesticks within that specified look-back period or the EMA
which is a weighted average which gives more weight more importance to recent
candlesticks recent price action it's totally up to you neither one is better
or worse than the other it's just whether you want it's up to you it's
your personal style whether you want to give more importance to recent price
action or whether you want a truer moving average that gives just as much
importance to what happened a while ago as to what happened very recently and so
the simple moving average gives a more even distribution in what it considers
in what it uses in its calculations alright so I tend to start people out
with the 5 and the 12 the 5 period moving average and the 12 period moving
average and that's true whether you can use that for day trading swing trading
right now I've got the the candlestick chart the daily
candlestick chart going back three months here so this could be good for
swing traders I like to look at the six month the one year daily charts here
we're looking at the three-month chart just because I want you to be able to
see the candlesticks are at the six and six month and one-year charts have very
small candlesticks which are hard to see in a video all right so hopefully you
can see this I put in purple the this is the faster moving average of the five
period or in this case the five day moving average and I'm using the
Exponential's in this case not the simple moving average but again it you
can choose either one they're both fine they're just a little bit different but
I put the five period the faster moving average here in purple and the slower
moving average the twelve period moving average I put in blue
okay so what's great about the moving average crossover system with the five
and the twelve there's enough space between the two and I don't want to have
too much space between the the two moving averages the faster one in the
slower one but I want to have some space if you just do let's say that I don't
know the 5 and the 8 or something like that
they'll be right on top of each other and it'll be hard to find a clear break
between the two whereas if you use the 5 in the 12 you get a nice clear break for
example down here you could you could have gone long down here when the the 5
day clearly broke above or crossed above the the 12 period moving average it's I
like it when it's almost perpendicular you almost get a 90 degree angle ok not
quite but at least they're not parallel alright at least they're not right on
top of each other so you get a nice clear break here and see would have gone
in where's the clear break probably around here you would have gone in
gotten in at around this candle and then the idea is you stay in the trade you're
letting your winners run and you're cutting your losers short so you stay in
the long position until the slower moving average the 5 period moving out
clearly crosses below the slower moving average of the the 12th period in this
case and it clearly broke not here they're on top of each other he had a
clear break here and so you would have gotten out right at about this candle
and so you would have enjoyed you would have let your winners you're letting
your winners run yeah you would have gotten in round here and you wouldn't
have gotten out until until here let's say that's that's a pretty good profit
from here to here okay not too bad right because a lot of people out of fear they
take small profits you know they get in here and then they get out way before
they should they're not letting their winners run and so this system allows
your winners to run and with the system with the five and twelve system when you
get the heck out when there is a clear break below then it's you almost never
take a big loss I don't want to say never because I suppose anything's
possible but you I don't know I don't really see
big losses with this system you're going to take a lot of small losses especially
you don't see it here much but if there's a situation if there's a stock
where there's a lot of sideways chop you know just a tight sideways range then
the five is going to cross a little bit above the 12 and then below then above
then below them and above then below and you're going to get eaten up with
Commission costs the unless you're using a no-cost or low-cost broker and you're
just going to take a lot of small losses okay that's part of the system you have
to be willing to put up with that but when you get a nice run that can no
guarantees no system is guaranteed but that can make up for all the small
losses when you have a nice big run up because it keeps you in the trade and
it's again I don't see I've never seen a situation I'm not going to say never but
I don't see situations really where you take big losses because when the five
crosses below the 12 there is a direction change there there's a trend
change and it takes you out very quickly let's say you had a clear break above
here okay and then Oh trend reversal trend change
well you're taken out very soon a few candlesticks later and you avoid that
long waterfall as I call it the big drawdown and that's another nice thing
about this system you get to enjoy the run ups let your winners run and you cut
short or avoid those draw draw downs yes you do have draw downs but they're cut
short pretty quickly with this system and I kind of like it and that's why I
choose the 5 and the 12 because you can see that clear break there they're not
on top of each other like the I don't know the five and seven or five and
eight or even five and ten can be a lot of people you choose the five and ten
man that's fine too but I tendency to start people with a five and twelve and
so that's why I choose those moving averages and that's for swing trading
let's look at let's say the one day chart and so you have the these are
5-minute candles you can you can adjust them to the two minute one minute
whatever you like alright and this is bar chart calm by the way and thanks to
my friend rich TV from Richie Rich TV live over there in Canada he's a user of
bar chart dot-com and I already knew about it but you know he uses it a lot
and he's got some great videos with bar chart calm so I'll put a link in the
description of this video to rich TV live but yeah so you can use this with
day trading and this is a bit Bed Bath & Beyond stock by the way I just chose a
random stock all right and you can see that when it crossed clearly below here
you would have avoided this long drawdown and when it kind of just went
on top of it here and that's not a clear break so you would not take a position
there necessarily I wouldn't and then you wait for a clear break above there
it is and you get to enjoy a nice run up and you don't get out until clear break
below right about there so you would have enjoyed a run-up from
let's say this candle to to this candle not too bad right and you would have
avoided the drawdown here all right so that's the five and the twelve I want
you to play around with combinations paper trade it virtual trade it don't
don't play around with real money okay play around with with your virtual
trading your paper trading or just watching and
check check it out decide what's best for you I can help people with that I
like to coach people you can send me an email anytime David Modell at gmail.com
if you liked this video if you found it helpful please give this a thumbs up on
youtube leave comments let me know what combinations you like the best what are
your favorite moving average cross overs or just moving averages in general and
if you haven't subscribed hey what's stopping you okay hit that subscribe
button hit that Bell on YouTube so I can give you the latest updates on my
financial educational videos I really like putting out these videos I really
do so I hope you will continue to check them out thanks a lot my name is David
Modell I'll talk to you again soon
things are kind of starting and she won't give it up
you give her just the body