Why use a Moving Average Slope – Trading Tips

We are going to discuss the importance of using a Moving Average Slope when trading. I will explain what this is, how we can use it in your trades. The Moving Average Slope (MAS) is a powerful indicator to help you identify trends and momentum. MAS shows the rate of change for an asset, which we can use to spot trends or gauge market sentiment.

The Moving Average Slope indicator is a great way to spot when the price might be about to change direction. The moving average slope can tell you if it’s going up, down, or staying flat. If you want a heads-up on what’s happening with your investments, this is an excellent tool to keep an eye on!

What is a Moving Average Slope

The Moving Average Slope is a great way to observe the direction of an underlying trend.
The moving average slope function plots the change in price against time. It indicates whether prices are trending upwards or downwards by comparing it with previous values at specific points along that journey based on how steeply they’re climbing/falling slopes.

The more steeply sloped line will show solid movement upward. In contrast, flat lines indicate weaker movements-this makes sense because we would expect increasing numbers at each point while decreasing ones demonstrate downward shifts during periods where investors are skeptical.

The moving average slope function is an indicator that we can use to determine the direction of momentum. A positive sloping Moving Average Line would indicate increasing momentum, while negative slopes are found when looking for decreasing prices.

The moving average slope is a straightforward indicator that may assist you in both automatic and discretional trading. We may use it in conjunction with other indicators to identify entries or be utilized as a filter for false signals. It’s most beneficial when using exponential averages; however, we may also use it with any other type of average.

Longer Moving Averages Slope: more reliable than shorter ones? 

The longer the moving average, the more reliable it is. This is because shorter averages are susceptible to “whipsaws” and other noise that may not be present in a long-term trend. For this reason, many analysts use 50 or 200-day moving averages to get a better sense of what’s going on in an asset class over time.

There is a difference between the short-term and long-term market movements. For example, the 20 days MA might go up and down many times, but on average, it moves more than the 50 days or 200 days MAs. This is because these days are less likely to change slope angles over shorter time frames due to stability at higher frequencies.

moving average slope indicator change directions

On the other hand, a long-term average offers more excellent support or resistance than a short-term average. Support at 200 days MAs is more difficult to break than 50 days MAs because they are steeper slopes that force traders trying to get through them with their investments by making price rise again after falling from its highest.

moving average slope with candles noise

When prices are trading above their 200 days moving average slope, it is an excellent time to trade. The price will have more support and resistance points so you can decide on where to buy. It will react stronger when it goes up or down from the end of the flat or declining levels.

Use an automated trading system with Moving Average Slope Indicator

We may utilize The Moving Average Slope Indicator to construct an automated trading system, which serves as a trend detector. A Moving Average Slope Indicator is a handy tool for traders. You can program it with specific settings to not give you false signals or miss opportunities.

It’s critical to compare more than two candles. Because there are a lot of changes in the slope direction, a lot of false alarms result. We prefer numerous corresponding candles. The noise is becoming less noisy. If you use a quick-moving average (a period shorter than 50), you’ll need to raise the number of bars used in the calculation.

To backtest this indicator, we built a basic Moving Average Slope Trading System. The technique works well when the market is trending up. We backtested this approach using a 20 MA period with EURUSD Daily from 2000 to 2010, and it worked. The automated trading system purchases when the slope turns green and sells when the slope becomes red without stop losses or position sizing.

Moving Average Slope Trading System Eurusd TradeStation
MA slope backtest EURUSD w results

The Moving Average Slope Trading System stopped working after 2010 when the volatility and strength of EURUSD and the other currencies fell. There are too many false alarms when a trend is weak.

Backtesting of this strategy is only for academic purposes to determine whether the approach is linked to the market.

Moving Average Slope with ADX filter

When the trend is flat, the indicator begins to move in random directions. We need to filter out the trend strength and attempt to stop the indicator when it is calm.

false signals when the trend is flat

The Average Directional Index (ADX) is a good indicator of trend strength. The trend is vital when the ADX value is high; whether it rises or falls makes no difference. The trend is unreliable when the ADX is less than 20, and the Moving Average Slope may mislead us.

Average Directional Index Indicator with four levels for TradeStation and MultiCharts

To read more about our ADX Indicator, click here.

The Moving Average Slope Trading System based on the ADX naturally improves with this. The approach is weak and should not be attempted.

MA slope backtest EURUSD with ADX filter
Two moving average slope indicator

Two moving average slope indicator

A quick method to eliminate false alarms is to use two Moving Average Slope Indicators in tandem.

So, for example, we may have a 20-periods Slope MA with a 40-periods Slope MA system.

When both indicators have the same direction, there’s a greater chance that they’re following the same trend. We might use a histogram to illustrate this.

We can use the Moving Average Slope indicator to create a variety of Moving Average Slope Trading Systems. However, keep in mind that the Moving Average is a lagging indicator and works best for trend confirmation.

double moving average slope with histogram

Using Moving Average Slope to filter the trend

With this indicator, we may use it in various trading system tactics to select the trend. Many traders utilize moving averages to pick the direction. It’s critical to realize that there isn’t any trend in shorter intervals. If we need to filter the direction, a 40-period Moving Average is required.

When you have a lot of charts open on your screens at your Trading Workstation in the office, this indicator comes in handy.

Disclaimer this is not a financial advice.