- March 20, 2023
- Posted by: CoachShane
- Categories: Trading Article, Trading Indicators
Do you want to start trading stocks and options but don’t know where to begin? The 10-period moving average is a great starting point for both amateur and experienced traders. This powerful tool can help guide your decisions in the stock market by providing an easy-to-read visual representation of price.
What We Will Cover:
- What is the 10 Period Moving Average?
- How to Calculate a 10 Period Moving Average
- Adding a 10 Period Moving Average To Your Chart
- EMA vs SMA
- Comparing A 10 Week Average vs 50 Day Moving Average
- Simple 10 Period SMA Trading Strategy
- 10 Period Moving Average FAQ
What is the 10 Period Moving Average?
The 10 period moving average (MA) is a technical indicator used to identify trends in stock prices and other financial instruments. It is calculated by taking the average of the price over a 10 periods – from intra-day to monthly charts. The MA can be used to identify support and resistance levels, as well as potential entry and exit points for trades.
For example, if you are looking at a chart with daily data points for Apple Inc., then your 10 period MA would be the average closing price of the last ten days. As long as the closing prices are higher than the previous day, the average will continue to trend upwards.
The MA can also be used to inform traders when it is the right time to enter or exit a position. If there is an uptrend present, then this could indicate that prices are likely to continue increasing over time and and buying may be the best trade to take.
If there is a downtrend present, then this could suggest that prices will likely keep decreasing and selling out of the position may be advantageous.
When price whips back and forth over the average as seen in the middle of the chart, traders may want to avoid trading the ticker.
MAs can also be useful for traders by helping them identify support and resistance levels within markets. Support levels occur when buyers come into play, pushing up against sellers but also prevents further declines in price.
Resistance levels occur when sellers come into play, pushing down against buyers which prevents further increases in price.
By using MAs such as 10 period ones, traders can see points where, price may reverse from. The average does not provide support or resistance but gives traders a framework to help identify support/resistance to the left of price.
Key Lesson: The 10 period moving average (MA) is a useful technical indicator for traders to identify trends, support and resistance levels, as well as entry and exit points. It is calculated by taking the average of the closing prices over the last 10 periods. By using MAs such as 10 period ones, traders can easily spot areas where either buying or selling pressure has been strong enough to cause changes in direction within markets.
How to Calculate a 10 Period Moving Average
To calculate a 10-period moving average, add up the closing prices of the last 10 periods and divide by 10. As each new period ends, drop the oldest period’s closing price and add the latest period’s closing price to get the new moving average.
This is for the simple moving average (SMA). You do have other options such as an EMA, WMA, and others.
Key Lesson: The 10 period moving average (MA) is calculated by taking the sum of closing prices over the last 10 periods and dividing it by 10.
Adding a 10 Period Moving Average To Your Chart
When selecting “Moving Average” from your list of trading indicators in your trading platform or charting software package, enter “10” as the period length. This will display your MA on your chart.
The 10-period MA is a simple calculation using the closing prices for each bar on the chart; however, most platforms allow you to select different types of MAs such as exponential moving averages (EMAs). Keep in mind that the more complex the calculation does not mean you will find better results.
There is also no magic number when determining the average length to use.
EMA vs SMA
When it comes to moving averages, the two most popular types are the exponential moving average (EMA) and the simple moving average (SMA). The EMA gives more weight to recent data points than older ones. This means that when prices change quickly, an EMA will react faster than an SMA.
This chart has 3 different 10 period weightings: SMA, EMA, and WMA. Is there a big enough difference between the three that would drastically alter your trading strategy?
It comes down to personal preference as they all have their advantages and disadvantages depending upon what type of trading strategy you are using. EMAs may provide traders with quicker signals but they can also produce false readings due to their sensitivity towards sudden price fluctuations like gaps and news releases.
Key Lesson: The 10 period moving average is a popular tool used by traders to assess the trend of an asset. It can be calculated using either an exponential or simple moving average, each with their own advantages and disadvantages. EMA’s are more sensitive to sudden price changes while SMA’s rely on longer term trends.
Comparing A 10 Week Average vs 50 Day Moving Average
The 10 week and the 50 day moving average will generally look the same on your charts. The 10 week will use a data set of 10 weekly closing prices, the 50 day will use 50 daily closes.
The vertical line represents the same time time period of the 10 week average on the left and the 50 day on the right. Both represent the change in trend direction fairly equally. Any difference in negligible and this will come down to a traders preference.
Key Lesson: When comparing a 10 week moving average vs the 50 day moving average, there is little difference in how they appear on the chart. It will come down to the preference of the trader.
Simple 10 Period SMA Trading Strategy
Due to the short term nature of the 10 period, using it to find consolidations and breakouts is a viable trading approach. If the last ten trading days has little movement, you will see the average catch up to price which is a good quantifiable way to find consolidations.
When trading consolidations, look for a strong directional move in the instrument. Look for price to consolidate at least around the 10 SMA.
Your trade entry can take many forms: reclaim of 10 period, breaking of a swing level, break of the highest high prior to consolidation, or even a failure test of a support level.
Your stop loss would go below the low of the pattern and take profits could be a multiple of risk – known as R multiples.
When there is a discrepancy between the price action and the 10-period SMA, it could be indicative of either an impending trend reversal or continuation, depending on their relative positions. For instance, if prices are making higher highs while the 10-period SMA is starting to trend downwards or flat, this may suggest that momentum has shifted and we might expect to see a bearish move downwards from current levels.
On the flip side, if prices are creating lower lows but our moving average line is starting to flatten or flip upwards, long trades may be the best trades to take.
Another strategy is to use the 50 SMA for trend direction and look for pullbacks to the area around the 10 period.
The 50 SMA tells us we can only take buys as price is not only above the average, but also the average is sloping to the upside.
Price pulls back to an area around the 10 period (look left for prior resistance now support) and traders can use entry techniques they are comfortable with.
If prices do not move too far from the short term average during an uptrend, we know that there is either lack momentum to the upside or building interest to the downside. If price gets too extended, consider looking for an instrument closer to the the ten period.
Key Lesson: The 10 period SMA can be used to spot consolidations after a large move or paired with a longer term average to use a pullback trading strategy.
10 Period Moving Average FAQ
What is the best period for moving average?
The best period for moving average depends on the type of trading strategy you are using. Generally, shorter periods (10-20 days) are better suited for short-term strategies such as day trading or scalping. Longer periods (50-200 days) are more suitable for long-term strategies like swing trading and position trading. There are an infinite amount of moving average periods to consider.
The popular moving averages are the 20, 50, 100, 200 periods.
It is important to experiment with different time frames to find what works best for your particular strategy. Ultimately, the most effective period will depend on your individual goals and risk tolerance.
What is a 5 period moving average?
It takes the last five closing prices and plots the average closing price over the last 5 periods. This helps traders to identify support and resistance levels, trend direction, and potential entry or exit points for trades when price crosses the average.
The shorter the time frame of the moving average, the more sensitive it will be to price changes; conversely, a longer time frame will provide less sensitivity but smoother data points.
What is a 9 period moving average?
A 9 period moving average takes the closing prices over the last nine periods and plots the average price. The 9 period moving average helps traders identify potential buying or selling opportunities by showing when a security’s momentum has shifted from up to down, or vice versa. Expect to see more whipsaw with this average.
Is 10 week line the same as 50-day moving average?
The 10 week and 50-day average are very similar and will generally look the same on the chart. Which one to use will depend on person preference.
Using ten days for the moving average length can help traders understand price action and help identify trends. It can be calculated using either an EMA or SMA approach and added to your chart. There is little difference between the 10 period weekly and 50 period daily moving average. It will come down to what you prefer.
Finally, with the right strategy in place, you can use the 10 period moving average as part of your trading plan to maximize profits and minimize losses.