The 10-Month Moving Average: A Game-Changer in Stock Trading (2024)

FAQs

What is the 10 month moving average strategy? ›

The 10-month moving average strategy is a type of market timing strategy that helps investors make informed decisions about when to enter or exit the stock market. This strategy relies on calculating the average stock price over a 10-month period and using this figure as a benchmark.

A 10-day moving average would average out the closing prices for the first 10 days as the first data point. The next data point would drop the earliest price, add the price on day 11, and take the average.

That is potentially rather “whippy” — subject to many false signals of breakouts and breakdowns, One simple solution is to use the 10 month moving average instead. (10 months is roughly 210 trading days). Since it only generates a new data point once a month, it removes a lot of the head fakes and false signals.

The 200-day moving average is considered especially significant in stock trading. When the 50-day moving average of a stock price remains above the 200-day moving average, the stock is generally thought to be in a bullish trend. A crossover to the downside of the 200-day moving average is interpreted as bearish.

The most accurate moving average strategy depends on various factors such as the market conditions, the timeframe you're trading, and your risk tolerance. However, one commonly used and relatively reliable strategy is the crossover method, particularly the “golden cross” and “death cross” signals.

There are advantages to using a moving average in your trading, as well as options on what type of moving average to use. Moving average strategies are also popular and can be tailored to any time frame, suiting both long-term investors and short-term traders.

As mentioned, this strategy revolves around the Exponential Moving Average (EMA), specifically the 10-period EMA. For those unfamiliar, the EMA places greater emphasis on recent price data compared to a Simple Moving Average (SMA), providing a dynamic view of market trends.

That depends on whether you have a short-term horizon or a long-term horizon. For short-term trades the 5, 10, and 20 period moving averages are best, while longer-term trading makes best use of the 50, 100, and 200 period moving averages.

To calculate it, simply add up the closing prices for the last ten sessions and divide the sum by the number of days that is 10. The SMA or simple moving average for the first day or the first point will be the average of the last ten closing prices.

Scalpers typically use shorter time frames for Moving Averages, such as the 5, 10, or 20-period MAs, to capture the most immediate price movements.

What is the best moving average for positional trading? ›

50-days and 200-days EMA's are considered best suited moving averages for positional trading strategy. Traders look for trading opportunities when the moving average lines cross each other.

Because the 10 EMA follows price action more closely than the 20 EMA, when it's on top it's signaling that the market is in an uptrend. On the flip side, when the 10 EMA is below the 20 EMA, we only want to be looking for selling opportunities as this often represents a downtrend.

Divide the total by your time period

If you're calculative over a 12-month period, divide by 12. To continue our example, for your total of $526,526 over 12 months, it might look like this:$526,526 / 12 = $46,877.17This means your business averaged $46,877.17 per month from July 2019 to June 2020.

The 9 EMA is an exponential moving average that calculates explicitly the average of the last nine closing prices, providing short-term continuation and reversal trading signals. The primary method to use the 9 EMA is to look for a crossover with another moving average, and technical analysis indicators.