How many times have you seen a trader stare at his 1 hour chart, wondering which moving average to use? There are so many choices!
The 50-period simple moving average, the 20-period exponential moving average, or the 10 periods weighted moving average.
Sometimes traders just look at their charts and hope for some sort of sign or miracle to tell them what they should do. It can be hard to make the right choice. We have put together this blog post to help you find the best moving average for a 1 hour chart.
What are the best strategies for trading on an hourly timeframe?
It is hard to say which type of average is best, but there are many. There are many ways to trade. Some traders find they are more profitable with longer timeframes and others prefer shorter ones. You can decide what is best for you!
We use moving averages a lot in our systems. We have a favorite moving average for each time frame.
With a series of practical examples, we will show you how to find the best moving average for each instrument on an hourly chart.
SMA Vs. EMA
One of the most important things a trader can choose is what type of moving average to use.
There are many different types of moving averages, and each one has its own way of working. Two stand out from the rest: SMA and EMA.
From Investopedia: How Is the Exponential Moving Average (EMA) Formula Calculated?
When it comes to picking what kind of moving average to use, the first decision is whether it will be a simple or exponential moving average.
The moving average is a way to see the trend in something. Some people put more weight on recent prices, but others look at all prices. You can also use an exponential or logarithmic moving average!
EMA means that each number equals out over its previous value. It is more responsive than SMA. It pays closer attention to new data and trends, so it is better for short-term prices.
Regardless of the trading strategy used, an hourly frame is still relatively fast. It will be preferable to use exponential moving average EMA.
If you trade the market in an hourly time frame, exponential moving averages will help you catch trends better. This is because it is a more advanced way of trading.
We use Exponential Moving Averages when we are looking for short-term moves because they allow us more precision. They help a lot when the market is volatile.
How to identify the best moving average period
The period you use can be confusing, but it is crucial. You should spend some time figuring out which one you want.
A moving average is a number that is constantly changing. It changes by taking the sum of numbers and dividing them by those numbers in the period.
The lower we set our period, the more reactive this will become to any changes made on price movements because they are not smoothed out. If the moving average period is lower, it will react more quickly to price changes.
It’s essential to understand the difference between trading a moving average for finding trends and using it as an input or output signal.
A moving average is a standard tool that can help traders identify when the market might be going up or down.
If you are looking for input or output signals, then shorter periods work better. They have higher sensitivity and lower lags in price movements.
What period choose for trend detection with a moving average?
What periods do you use for trend detection on a 1-hour chart? This is one of the most common questions we get from traders.
There are many different answers to this question. The most popular solution is 20, but some people like to go as high as 50 days.
We use 20-day moving averages because they allow us to notice patterns and don’t lag too much when placing orders.
20 Period EMA in 1-hour chart
The 20 period moving average is a popular trend following indicator. It can be used to identify the direction of an underlying asset’s movement.
If the price is above its 20 period MA and stays there for three bars, it means that an uptrend might happen, or a downtrend could be reversing.
When this happens, traders need to be careful because the trend could change. If the price goes below its 20 period MA for three days in a row, it is a sign that they are going down.
We like using 20-day moving averages because it’s easy to notice trends and not too difficult to enter or exit positions.
50 Period EMA in 1-hour chart
The 50 EMA can tell you where you are about the resistance and support levels.
It is always better to trade with the trend. Make sure that you use this knowledge wisely!
The 50-day moving average is a way to reduce risk in your portfolio when the market starts going up or down. It can be hard sometimes when the trends change quickly.
A 50 moving average is an excellent way to help see trends in the market. It helps to smooth out short-term changes, too.
The 50 periods MA will help you be less reactive to your investments. You can see what is happening without being too worried about whether or not it is good.
A moving average can be a great way to smooth out the ups and downs in your trading. A 50-period simple Moving Average is less reactive than more popular options, giving you an advantage over other traders who are constantly chasing trends.
There is one downside. It does not consider recent price changes as much, and that could mean you miss out on a big move.
Using Moving Average as a filter in 1 hour chart
Moving average filter for Intraday trader
If you are an intraday trader, you will likely operate on charts smaller than the hourly one. However, you should always keep an eye on an hourly chart to track the primary trend.
Keep in mind that a moving average’s primary goal is to provide indicators of the trend. A 20-period EMA on an H1 chart will offer you a good indication of the trend’s direction.
To identify the trend quickly, you can use this rule:
- When the price is above the moving average, we are in an upswing.
- We are in a bearish trend when prices fall below the moving average.
Insider Tips: Analyzing the moving average slope, also known as the moving average angle, can provide further information.
The indicator’s 20 period moving average is ideal for all instruments when used as a trend filter.
Moving Average filter for Multi-day Trader
If you’re a multi-day trader on daily charts, the hourly chart can help you perfect your entry.
Traders choose daily charts because they are more trustworthy. They are less influenced by the market’s anxiety.
However, by utilizing an hourly chart for market entry, you may discover far superior entry possibilities.
For example, you may use the intersection of two EMAs with different periods, one slow at 20 periods and one fast at five periods.
Remember that the exponential moving average is a trend indicator that works best when there is a trend to track.
Suppose you notice that the price is frequently approaching a moving average. In that case, this indicates that the market is not trending, and a trend follower approach will not work.
How to use EMA as a trailing stop
Sometimes, traders use the trailing stop to protect their profits. A trader can also use it as an exit strategy. The 50 periods EMA is often used by traders for trailing-stop because it has historically shown that it can identify market turning points or reversals.
Common mistakes traders make when using EMA.
The EMA is a widely used technical indicator. It has benefits for traders but also some disadvantages.
The Crossover EMA strategy is a way to trade. It relies on two moving averages that cross over. While simple in principle, the crossover ema approach has not proven to be an accurate indicator of the market in practice.
As a result, traders should not look at this signal when deciding where to invest their money.
Every trader has experienced the frustration of following an EMA strategy only to find out that they are not profitable.
For a long time, some investors have used the crossing of moving averages to their advantage. But this strategy does not work as well with today’s modern world. The world is too noisy because of all the factors at play. It seems simple, but it doesn’t work anymore.
What is the best Moving Average in 1 hour chart with Forex
As you know, the forex is open 24 hours a day, and sessions switch every now and then, but negotiations are continuous.
When selecting the most acceptable Ema in the 1-hour chart for forex, you must consider when you will be utilizing your indicator.
In fact, during the night, the market is generally flat and has little volatility. The issue is that the market will move quickly as soon as the European session begins.
Imagine seeing your hourly chart at 8 pm with a five-period moving average and looking at the market.
The moving average will be useless because the volatility about arriving will differ significantly from the previous one.
A 5-period exponential moving average of your hourly chart is a calculation that refers to the movement of prices from 3 to 8 (British time).
An exponential moving average gives weight to the latest prices. This can be a problem. An exponential moving average should change to match the time frame when you are on an hourly chart.
The greatest thing you can do is to employ a 20-period average and adjust it for volatility.
- If the instrument’s volatility is high, increase the moving average period.
- If the instrument’s volatility is low, reduce the period of the moving average.
Let’s see some examples:
The opening of the London stock market at 8 am unleashed Eurusd, which moved in tandem with it.
We used a 10-period moving average on the hourly chart in this example.
Ema stands at current market levels, as shown by the price chart. This is because volatility is rare in most cases, as we witnessed during the night.
The price rises at once as soon as the first noteworthy volumes are observed, breaching the ema.
Of course, the signal will not have the same impact at 18 when the EMA refers to the previous ten periods with medium-high volatility.
We recommend utilizing a 20-period Ema, which, in our opinion, is the correct value.
The best Ema in 1 hour chart for UsdJpy
This example pertains to the UsdJpy currency pair; during the Asian session, it is most active at 02 am London time. So being able to spot a trend early in the morning may be more straightforward.
The 15-period exponential moving average is the most OK Ema in the UsdJpy 1-hour chart because this cross is less volatile than the EurUsd cross.
Even with this instrument, the market is open 24 hours a day, which has drawbacks due to the continual volatility swings.
The best Ema in 1 hour chart for Audusd
AudUsd is also more active during the night; often, there is important news that creates volatility. For the same reasons as UsdJpy, using a 15-period average on an AudUsd hourly chart is feasible.
Using EMA as a filter
Intraday trader. If you are an intraday trader, you will most likely operate on charts smaller than the hourly one.
Probably, however, you will always monitor an hourly chart to monitor the primary trend.
Remember that the primary function of a moving average is to give indications on the trend. An H1 chart with a 20 period EMA will give you a reliable sign of the trend’s direction.
To identify the trend quickly, you can use this rule:
- When prices are above the moving average, we are in an uptrend.
- When prices are below the moving average, we are in a bearish trend.
Insider Tips: You can get more information by analyzing the moving average slope, i.e., the angle of the moving average.
Using the indicator as a trend filter, the choice of a 20 period moving average is perfect for any instrument.
Multi-day Trader. If you are a multi-day trader on daily charts, you can use the hourly chart to perfect your entry.
Many traders prefer to use daily charts because they are much more reliable and less subject to the market’s nervousness.
But you can find better entry opportunities by using an hourly chart for market entry.
For example, you can use the intersection of two EMAs with different periods, one slow at 20 periods and one fast at five periods.
Always remember that the exponential moving average is a trend indicator that works well when a trend exists.
So if you see that the price often touches the moving average, it means that the market is not trending, and a trend follower strategy will not work.