Without doubt moving average is most popular trading tools. In this article, I going to show you what you need to know when you use moving average to trade futures.

Should I use EMA or SMA? Which one is the best?

First of all, traders need to  understand the differences between EMA (Exponential Moving Average) and SMA (Simple Moving Average).

The difference between EMA & SMA is SPEED! EMA moves faster and changes direction earlier than the SMA. In other words, EMA will give you more and earlier signal than SMA.

What I personally use to trade Futures?

When comes to live trading, I tend to favor the exponential moving average (EMA) compared to other types of moving average. This because Futures is fast moving market and exponential moving average can help me react faster to the price dynamics. Therefore, EMA offers a more accurate view in Futures market compared to the simple moving average.

How to use Exponential Moving Average (EMA)?

While you can use the exponential moving average in many ways, professional traders tend to keep things simple. There are basically two ways you can use the exponential moving averages in trading:

 #1 Trend Direction

I come across this quote from Market Wizard Marty Schwarty:

"The 10 day exponential moving average (EMA) is my favorite indicator to determine the major trend. I call this "red light, green light" because it is imperative in trading to remain on the correct side of moving average to give yourself the best probability of success. When you are trading above the 10 day, you have the green light, the market is in the positive mode and you should be thinking buy. Conversely, trading below the average is a red light. The market is in a negative mode and you should be thinking sell."-Marty Schwarty

I completely agreed with Marty Schwarty. He uses a fast EMA to filter out trades in the wrong direction. Just one single tip you can make a huge difference in your trading.

As position/swing traders, you can use moving average as directional filter. The golden can deathly cross is a signal when the EMA 8 and 13 period cross.

In the chart above, I marked the Golden and deathly cross entry. You should short when the EMA 8 crosses below the 13 period moving average. And you should go long when the EMA 8 crosses above the EMA 13.

As you can see the moving average cross overs can help your know the current market trend and prick the right direction.

# 2 Using Moving average as dynamic support and resistance

The best thing that moving average can help you in trading is support and resistance. You can often see that moving averages work perfectly as support and resistance levels.

Let's see how dynamic support and resistance looks like:

Above chart is the most popular dynamic support and resistance (EMA 200)use by many technical analysis and fund managers.

Since the EMA always moving up or down depending on the price action, these levels act as dynamic pivot zones that you can use to refer.

And now you can see that moving averages are multi-function tool that you can used in a different ways. Once you truly understand the Moving averages, it can be an important tool in trading.

Grab your Free Ebook here!