Moving Averages in Trading: The Complete Guide

One point that trips up many beginners: a moving average's period counts candles, not days. A 200-period average on a 5-minute chart covers about 16 hours of trading, not 200 days. Always match the setting to the timeframe you're trading.

With that in mind, here are some popular moving average combinations for each type of trading style:

Best Moving Averages for Scalping

Scalpers hold trades for seconds to minutes, so they need averages that react almost instantly to market movements. Short EMAs such as the 5, 8, 13 and 21 are the usual choice. Stacking the 8, 13 and 21 EMAs is a popular way to read momentum at a glance: when they're fanned out in order, the move has energy; when they twist together, it's time to step aside. Many scalpers also keep a 50 EMA on the 15-minute chart as a directional filter. Expect more false signals at this speed, and remember that spreads and commissions take a bigger share of each small profit.

Best Moving Averages for Day Trading

Day traders open and close positions within the same session, so they need moving averages that respond quickly to price changes. The 9 and 21 EMA crossover is a popular choice for spotting potential momentum shifts, while pullbacks to the 20 EMA on the 5- or 15-minute chart can help identify potential entry points in trending markets.

A 50 EMA on the hourly chart can help determine the broader session bias, allowing traders to align shorter-term setups with the overall trend. However, moving averages are lagging indicators and can generate false signals in choppy markets, so it's important to confirm them with price action and use proper risk management.

Best Moving Averages for Swing Trading

Swing traders hold positions for several days to weeks, making the 4-hour and daily charts useful for identifying trends and potential entry points. The 20 and 50 EMAs are popular choices for swing trading, with the 50-period moving average often used to assess the intermediate trend. When the price stays above a rising 50 EMA, it can indicate bullish momentum, while trading below a falling average may suggest a bearish trend.

Pullbacks to the 20 EMA can offer potential entry opportunities in strong trends, while the 50 EMA may act as a support or resistance area during deeper retracements. Traders can also use crossovers between the two averages to identify possible changes in momentum. However, these signals are not guarantees, so it's important to confirm them with price action and technical indicators.

Best Moving Averages for Long-Term Investing

Long-term investors focus on the primary market trend rather than daily price fluctuations, making the 50-day and 200-day Simple Moving Averages (SMAs) popular tools. The 50-day SMA helps track the intermediate trend, while the 200-day SMA is widely used to assess the longer-term direction of stock indices, individual shares, and commodities. On a weekly chart, the 40-week SMA provides a similar long-term perspective to the 200-day average.

Investors often watch how prices behave around these averages to assess market strength and potential trend changes. For example, a price holding above a rising 200-day SMA may indicate a sustained uptrend, while a break below a falling average could signal weakening momentum.

Top Moving Average Strategies

Below are three of the most popular moving average strategies. Each one includes the setup, entry, stop, exit and the market conditions it suits. Test any of them on a demo account before you trade real money.

1. The 8/13/21 EMA Strategy

The 8, 13 and 21 are Fibonacci numbers, and together they form a fast EMA ribbon that suits scalping and day trading.

• Setup: For a buy, the 8 EMA sits above the 13, the 13 above the 21, and all three slope upward with visible space between them. Reverse this for a sell.
• Entry: Wait for price to pull back into the zone between the 8 and 21 EMA, then enter when a candle closes back above the 8 EMA.
• Stop: Below the 21 EMA or the most recent swing low.
• Exit: When the 8 EMA crosses below the 13 EMA, or at a fixed reward-to-risk target such as 2:1.
• Best conditions: Clean trends on the 5-minute to 1-hour charts. Stay out when the three lines are flat and tangled.

2. The 9/20 EMA Crossover

The 9 and 20 EMAs pair a reactive momentum trigger with a short-term trend baseline, creating a straightforward crossover framework for intraday and swing setups.

• Setup: For a buy, the 9 EMA crosses above the 20 EMA with an upward slope. For a sell, the 9 EMA crosses below the 20 EMA with a downward slope.
• Entry: Enter at market on the crossover candle close, or wait for a pullback into the dynamic zone between the 9 and 20 EMAs before entering.
• Stop: Below the previous swing low for a buy, or above the previous swing high for a sell.
• Exit: When the 9 EMA crosses back over the 20 EMA in the opposite direction, or at a fixed reward-to-risk target of at least 1:2.
• Best conditions: High-liquidity windows such as the London/New York session overlap on major forex pairs, running on 5-minute to 4-hour charts. Avoid flat, consolidating ranges where moving averages compress and chop.

3. The Moving Average Bounce (Pullback) Strategy

This strategy uses moving averages as dynamic support and resistance.

• Setup: Confirm a trend with a rising 50 EMA and price trading above it.
• Entry: Wait for price to pull back to the 20 or 50 EMA, then buy on a bullish rejection candle such as a pin bar or bullish engulfing pattern.
• Stop: A few pips below the moving average and the swing low.
• Exit: At the previous swing high, or at a 2:1 reward-to-risk target.
• Best conditions: Established trends with orderly pullbacks. In a downtrend, flip the logic and sell rallies into a falling average.

Combining Moving Averages With Other Technical Indicators

If you've tried trading with moving averages without success in the past, what you might be missing is simply combining them with other technical indicators. Let's show you a few you could try out.

1. Relative Strength Index (RSI) and Moving Averages

While moving averages are great at telling us the overall direction of the market, they sometimes don't give us the clearest indication of when it's best to capitalize on the move. This is where the RSI comes in.

There are a lot of ways to combine these beautifully, but one of our favorites is using the two indicators to catch a trend continuation. Here's how to go about it:

Let's say the market is currently in an uptrend. What you want to do is wait for the market to pull back to the moving average of your choice, in this case the 13 EMA, while the RSI is also bouncing off the neutral 50 level.

Once you see these happening, what you should be doing is getting ready to buy immediately after a bullish candlestick pattern forms. That's it.

In a downtrend, just flip it. Wait for a rally into the 13 EMA with the RSI getting rejected at 50, then look to sell after a bearish candle forms.

Here's an example of this combination on a price chart:

2. Bollinger Bands and Moving Averages

Here's something a lot of traders don't realise: if you've ever used Bollinger Bands, you've already been trading with a moving average. The middle band is simply a 20-period SMA, and the outer bands sit two standard deviations above and below it.

So what does adding another moving average do for you? It gives the bands a direction. On their own, Bollinger Bands tell you when price is stretched, but they don't tell you which side you should be trading from. Add a 50 EMA and that problem goes away.

Here's how we like to use them together. If price is above a rising 50 EMA, you only care about the lower half of the bands. Wait for the market to dip into the lower band (or the middle band if the trend is strong), and get ready to buy once a candle closes back inside with some strength. In a downtrend, do the opposite and look for rallies into the upper band.

One more thing to watch for is the squeeze. When the bands pinch tight together and the 50 EMA goes flat, the market is resting. Don't force pullback trades here. Wait for price to break out of the squeeze and for the moving average to start sloping in that direction, then go back to buying dips or selling rallies.

3. MACD and Moving Averages

The MACD is built from moving averages too (the 12 and 26 EMA), so it pairs naturally with them. Where it really shines is timing your entries inside a trend that your moving average has already spotted.

Here's a simple way to put them together. Add a 200 EMA to your chart and only trade in its direction, so if price is above it, you're only looking for buys. Now wait for the MACD line to dip below its signal line during a pullback, and buy when it crosses back above. If that cross happens below the zero line, even better, because it tells you the pullback was a proper one and not just a pause.

In a downtrend, with price below the 200 EMA, you're waiting for the MACD line to cross back below the signal line after a rally.

How to Add Moving Averages on MT4 and MT5

If you've never added an indicator in MetaTrader before, don't worry. It sounds technical, but once you've done it once, it takes less than a minute. Let's walk you through it on MT4, MT5 and the mobile app.

How to Add a Moving Average on MT5

1. Open MT5 and log in to your account. A demo account works fine if you just want to practice.

2. Open the chart you want to trade. The quickest way is to find the pair in the Market Watch window (press Ctrl+M if you can't see it), right-click it and select Chart Window.

3. Go to Insert > Indicators > Trend > Moving Average. You can also open the Navigator window (Ctrl+N), expand Indicators > Trend and drag Moving Average straight onto the chart.

4. A settings window pops up. On the Parameters tab, fill in the following:

• Period: the number of candles to average, for example 50.
• Shift: leave this at 0.
• MA method: choose Simple for an SMA or Exponential for an EMA. Smoothed and Linear Weighted are there too.
• Apply to: Close, which is the standard choice.
• Style: pick a colour and line width you can see clearly against your candles.

5. Click OK, and your moving average appears on the chart.

How to Add a Moving Average on MT4

MT4 works almost exactly the same way:

1. Open MT4, log in, and open the chart you want from Market Watch (right-click the symbol and select Chart Window).
2. Go to Insert > Indicators > Trend > Moving Average, or drag it onto the chart from Navigator > Indicators > Trend.
3. On the Parameters tab, set the Period, Shift, Method (Simple, Exponential, Smoothed or Linear Weighted) and Apply to (Close), then choose your colour and line width.
4. Click OK.

How to Edit, Remove or Save Your Moving Averages

To change a setting later, right-click the moving average line on the chart and open its properties. To remove it, right-click and choose Delete Indicator. If your chart is busy and the line is hard to click, press Ctrl+I to open the Indicators List, where you can edit or delete anything on the chart.

Once you've got a setup you like, save it as a template so you don't have to rebuild it every time. Right-click the chart, go to Template > Save Template and give it a name. Next time, right-click any chart, go to Template, and load it in one click. Here's a little trick: if you name the template "default", MetaTrader will apply it to every new chart you open.

One thing to note: the Hull Moving Average isn't built into MetaTrader, so you'd need to install it as a custom indicator first.

Switch Markets offers both MT4 and MT5, so you can build and practice these layouts on a free demo account before going live. And if you'd like to go a step further, Switch Markets' AlgoBuilder lets you turn a moving average crossover into an automated strategy and test it on historical data before trading it live.

Where Moving Averages Can Mislead You

We love moving averages, but we'd be lying if we told you they're perfect. Here are the mistakes we see traders make the most, and what to do instead.

1. Expecting Them to Catch the Top or Bottom

Every moving average is built from prices that have already happened, so it will always be late. Go back to the GBP/USD chart earlier in this guide. The 20 SMA didn't turn down until about nine candles after the 20 EMA did, and by then a good part of the move was already gone.

That isn't something you can fix with a better setting. It's just how the tool works. Use the moving average to confirm the direction, and use price action, like a break of structure or a rejection candle, to time your entry.

2. Trading Every Crossover in a Ranging Market

This is the one that hurts the most. When the market goes sideways, price cuts through the moving average over and over, and every cross looks like a signal. Take them all and you'll get chopped up by small losses.

A quick check we use before trusting any signal is to look at the slope. If the line is flat and price has crossed it several times in the last 20 or so candles, there's no trend to trade. Step aside and wait for the line to start pointing somewhere.

3. Treating the Line as an Exact Price

Price rarely touches the 50 EMA to the exact pip and bounces. Sometimes it stops just short, and sometimes it pokes through by a few pips before turning. Treat the moving average as a zone, not a line, and wait for a candle to close before you act.

The same goes for your stop loss. If you place it right on the moving average, you're putting it exactly where everyone else has theirs. Give it some room below the swing low instead.

4. Turning Your Chart into Spaghetti

If you can barely see the candles because of all the lines on your chart, that's a problem. Six or seven moving averages will give you six or seven different opinions, and you'll always find one that agrees with the trade you already wanted to take. Two or three is plenty: one for the trend and one or two for timing.

Above all, remember that a moving average is one tool, not a complete trading plan. Pair it with market structure, a second indicator if you like, and sound risk management.

Final Thoughts

Moving averages have lasted for decades because they do one job very well: they turn messy price action into readable market trends. The simple moving average gives you a steady, big-picture view. The exponential moving average gives you speed. Between them, and with the right period for your timeframe, you can define the trend, find dynamic support and resistance, and build entries around crossovers and pullbacks.

Just remember what they can't do. They lag, they whipsaw in ranges, and they work best as part of a wider plan. Start with one or two averages, test your chosen method on a demo account, and add other indicators for confirmation once the basics feel natural.

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FAQs

Below are quick answers to the moving average questions traders ask most often, from choosing your first setting to using these lines on forex pairs.

What is the best moving average for beginners?

The 50 and 200-period simple moving averages are a good place to start. They're easy to read, widely watched, and they give a clear picture of the medium and long-term trend without too much noise. Once you're comfortable, add a faster EMA, such as the 20, for timing entries.

Is the EMA better than the SMA?

Neither is better in every situation. The EMA reacts faster because it gives more weight to recent prices, which suits short-term trading. The SMA is smoother and produces fewer false signals, which suits longer-term trend analysis. Many traders use both.

What does the 200-day moving average tell you?

The 200-day moving average is a common long-term trend reference. When price trades above a rising 200-day average, the long-term trend is generally considered up. When it trades below a falling one, the long-term trend is generally considered down.

Do moving averages work in forex?

Yes. Forex pairs often trend for long stretches, which makes moving averages a natural fit. They work less well when a pair is stuck in a tight range, so check the market conditions before relying on a signal.

What are the best moving average settings for day trading?

The 9 and 21 EMA crossover and the 20 EMA are among the most popular settings for day trading on the 5-minute to 1-hour charts. Many day traders also watch the 50 EMA on the hourly chart to gauge the session's overall direction.