A moving average is used to show the actual trend that price is in and can act as support via a moving trendline. When the moving average is below price, it is in an uptrend. If the moving average is above price, it is in a downtrend.

Traders use different lengths of moving averages! Common ones used are the 8, 14, 50, and 200. Those lengths calculate the average movement of the closing price of the candles within the time frame currently in use. For example, the 8 moving average would be the calculation of the last 8 closing candlesticks on that particular time frame. The shorter the length, the closer the moving average will be to the candles. The longer the length, the further away the moving average will be to the candles.

There are upsides and downsides to setting short and long lengths on your moving average. With shorter lengths, there may not be enough data, making it harder to see the trend and giving you early signs to enter the market when price can change directions; but the pro of a shorter MA is you may get better entries! Using the longer lengths, you may be able to detect the actual trend with it being further away from current price, but you may not get the best entry possible. With these downsides, you want to choose a length to use that fits the time frame you are trading on because there are benefits to using both!

NOTE: Moving average lags just as any other indicator, so it shouldn’t be traded without the combination of strong confluences.

Using two different length moving averages can enhance your trading if you combine it with other confluences. The shorter length moving average will be above the longer length MA in an uptrend, and the longer moving average will be above the shorter moving average in a downtrend. Great entries are found during the change of the trend when the moving averages cross over the other, which indicates a possible reversal of the trend.