Exponential Moving Averages - HTF Analysis
The moving averages are a key higher time frame reference. I realize that they are not a part of the traditional Auction Market Theory process but they are heavily watched amongst the big players and are a great gauge of the current market conditions. I prefer to use the Exponential Moving Averages (EMA) over the Simple Moving Averages (SMA) because they are more dynamic (engaged) and provide a smoother perspective. Either moving average type will work and it comes down to preference but as I said, I prefer the EMAs because of the dynamic engagement of price. EMAs respond faster to price changes than SMAs. Additionally, I prefer to use the EMAs on a daily chart to see a good medium of all the time frames. You can, of course, use smaller or larger chart periods and as always, come down to personal preference.
I utilize the following EMAs and break them down into short term trends and long term trends:
Short Term:
- 5 EMA
- 10 EMA
- 20 EMA
Long Term:
- 50 EMA
- 100 EMA
- 200 EMA
When the market is trending, it will be supported by the 5, 10 and on larger pullbacks, 20 EMAs. When price touches these averages, we’ll often see either buying or selling come into the market with the respective direction of the trend.
In the following example, you can see how the price is affected by each average given the market’s context. The red boxes I’ve drawn on here are pointing out what I would call short term trends or moves that find support or resistance at the 5, 10 and 20 EMAs. These averages will see the reaction from the shorter to medium term time frame market participants.
(Click on image to enlarge)
Longer term trends will be supported at the larger time frame references as I mentioned, the 50, 100 and 200 EMAs. These levels are where you will see higher time frame participants’ reactions.
(Click on image to enlarge)
So the idea in using these averages is just to build on another layer of context and reference. Or more importantly, see what the higher time frame traders are referencing in the current market’s structure. You, of course, can marry these levels in with your other references to identify key confluence areas for potential trade locations.
The basics of the use of moving averages I imagine would be known with a majority of people here but for those that don’t know how they work and their general uses of them or rules if you will, here’s a quick primer.
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