How To Use 20 SMA (Simple Moving Average)

Step-by-Step Tutorial: How to Utilize the 20 Period Moving Average for Trading Success

1. Understand the Moving Averages:

   • The key moving averages to focus on are the 20 period moving average and the 200 period moving average.

2. Determine Market Direction:

   • Note whether the 20 period moving average is rising or declining.
   • If the 20 period moving average is rising, consider being a buyer.
   • If the 20 period moving average is declining, consider being a seller.

3. Trade with the Trend:

   • Play in the direction of the 20 period moving average to stay aligned with the trend and avoid complications.

4. Identify Winning Trades:

   • Look for green surges and green bars that surpass red bars.
   • Avoid trading against the 20 period moving average as it leads to a high percentage of losing trades.

5. Implement Risk Management:

   • Follow the one bar loss rule to keep your losses small.
   • Stay strong and disciplined when trading in the direction of the 20 period moving average.

6. Recognize Market States:

   • Focus on narrow states where the 20 period moving average, 200 period moving average, and stock prices are closely clustered together.
   • Explosive moves often occur from narrow states rather than wide states.

7. Execute Trades Strategically:

   • Play surges in the direction of the 20 period moving average.
   • Take profits when the market moves closer to the 20 period moving average.
   • Avoid overcomplicating trades and stick to a rule-based approach.

8. Practice Discipline and Consistency:

   • Trade with the right amount of capital and adhere to a disciplined trading plan.
   • Build experience and expertise over time by consistently following the rules and focusing on improving your trading skills.

9. Monitor Market Signals:

   • Pay attention to the signals provided by the 20 period moving average to guide your trading decisions.
   • Avoid wide market states and focus on entering trades from narrow states for better results.

10. Continuous Improvement:

    • Learn from your mistakes and losses to refine your trading strategy.
    • Avoid shortcuts and focus on building the right experience to become a successful trader in the long run.

By following these steps and incorporating the principles of trading with the 20 period moving average, you can improve your trading performance and increase your chances of success in the market.