Complete Guide to MA Moving Average Settings: From Basic Theory to Practical Application

Moving Average (MA or均線) is one of the most fundamental and commonly used indicators in technical analysis. Whether you are a short-term trader or a long-term investor, mastering the settings and applications of moving averages is an important step to improve your trading success rate. This article will provide a comprehensive analysis of this classic tool, covering its definition, classification, calculation, setup, and practical application.

What exactly is a Moving Average?

Simply put, a moving average is the arithmetic mean of the closing prices over a specific period. As time progresses, each new trading day generates a new average value. Connecting these averages forms the moving average line you see on charts.

Calculation formula: N-day MA = Sum of closing prices over N days ÷ N

For example, a 5-day MA is calculated by adding the closing prices of the past five trading days and dividing by 5. With each completed candlestick, the MA shifts backward by one period, calculating a new average.

The core function of the MA is to help traders quickly determine the direction of the price trend. By analyzing the arrangement of short-term, medium-term, and long-term MAs, traders can identify whether the market is in a bullish or bearish state, thus finding suitable buy or sell opportunities.

How to choose among the three types of MAs?

Based on different calculation methods, there are three main types of moving averages in the market:

Simple Moving Average (SMA): Uses the most basic arithmetic mean, assigning equal weight to each day’s price. This is the most intuitive and easiest to understand type of MA.

Weighted Moving Average (WMA): On top of SMA, gives higher weights to the most recent prices. The closer the data point, the greater its weight, making WMA more sensitive to recent price changes.

Exponential Moving Average (EMA): Uses an exponential weighting method, assigning even higher weights to the latest prices. Because EMA reacts more swiftly to price fluctuations, short-term traders generally prefer EMA over SMA. Compared to WMA, EMA and WMA can capture trend reversals faster than SMA.

For general traders, there’s no need to memorize the calculation formulas—trading software will do it automatically. You only need to understand: EMA reacts quickly and suits short-term trading, while SMA is stable and better for medium to long-term strategies.

The core of MA setup: how to choose the time period?

The power of the MA comes from flexible period settings. Different periods reflect different time scales of price movements:

Short-term MAs (5-day, 10-day):

• 5-day MA (weekly) indicates very short-term trends. If the 5-day MA rises sharply and is above other MAs, it signals an upward trend.
• 10-day MA is an important indicator for short-term traders.

Medium-term MAs (20-day, 60-day):

• 20-day MA (monthly) reflects a month’s trend, attracting both short- and medium-term investors.
• 60-day MA (quarterly) is used to observe the strength of medium-term trends.

Long-term MA (240-day):

• 240-day MA (annual) is used to determine the long-term trend for the entire year. When short-term MAs cross below the quarterly and annual MAs, it indicates a market entering a bearish phase.

Key understanding: Short-term MAs better reflect recent price changes but with slightly lower predictive accuracy; medium and long-term MAs change more slowly but can more accurately predict trend reversals.

In actual trading, there is no absolute “perfect period.” Some choose 14 days (roughly two weeks), others use 182 days (about half a year). The most important thing is to find a period combination that aligns with your trading system.

How to set up MA on trading platforms?

Most trading software provides simple MA setup functions. The basic steps are:

Step 1: Open the candlestick chart; the software usually defaults to 5-day, 10-day, and 15-day simple MAs.

Step 2: Click the indicator settings button at the top right of the chart.

Step 3: Select the MA type you need (SMA, WMA, or EMA) and the time period. For example, short-term traders might set up three SMAs at 5, 10, and 20 days, or three EMAs at the same periods.

Step 4: Confirm the settings, and the selected MAs will be displayed on the chart in real-time. You can also add other technical indicators like MACD, Bollinger Bands, RSI for comprehensive analysis.

Four practical application rules

1. Determining trend direction through the arrangement of multiple MAs

This is the most basic and important application of the MA.

Bullish arrangement: When the short-term MA is above the medium-term MA, and the medium-term MA is above the long-term MA, it forms a “bullish arrangement.” This usually indicates an upward trend, and short-term investors should consider buying.

Bearish arrangement: Conversely, when all short-term MAs fall below the medium- and long-term MAs, it forms a “bearish arrangement,” indicating a potential ongoing downtrend. At this point, consider shorting or exiting positions.

Consolidation signal: If the closing prices fluctuate between the short-term and long-term MAs, the market is in a sideways consolidation phase. Investors should be cautious with positions and wait for a clear trend to emerge.

2. Capture golden cross and death cross opportunities

The most classic method to find entry points is to observe crossovers of MAs of different periods.

Golden cross: When a short-term MA crosses above a long-term MA from below (at a low point). This is a strong buy signal, indicating the start of an upward move.

Death cross: When a short-term MA crosses below a long-term MA from above. This is a clear sell signal, suggesting a downward trend.

For example, on the EUR/USD daily chart, when the short-term MA crosses above the medium- and long-term MAs, the price tends to rise afterward, signaling a good time to go long; conversely, when the short-term MA crosses below these MAs, the price enters a downtrend, suitable for shorting or closing positions.

3. Combine with oscillators to compensate for limitations

The biggest weakness of MAs is lagging—the market has already moved significantly before the MA reacts. Combining leading indicators like RSI, MACD can help offset this.

Specific method: When oscillators show divergence signals at key levels (e.g., price makes a new high but the indicator does not), and MAs show signs of flattening or slowing, it often indicates a potential trend reversal. Smart traders will preemptively position for reversals or lock in profits.

4. Use MAs as stop-loss references

MAs can also serve as dynamic stop-loss points. Short-term traders often choose the high or low points of the 10-day or 20-day MA as stop-loss levels.

Going long: If the price falls below the 10-day low and breaks the 10-day MA, exit the long position immediately. Going short: If the price rises above the 10-day high and breaks the 10-day MA, exit the short position immediately.

This method’s advantage is that it is entirely based on market prices, reducing subjective judgment.

Limitations of MAs should not be ignored

Although powerful and easy to use, MAs are not perfect tools.

First, since MAs are calculated from past prices, they inherently lag behind the market. The longer the period, the more pronounced the lag. This means that during rapid reversals, MAs tend to react slowly.

Second, past price trends do not guarantee future movements, so the predictive power of MAs has some uncertainty.

Finally, MAs can cause traders to fall into the “chasing highs and selling lows” trap—apparent clear signals often fail during highly volatile markets.

Therefore, a successful trading system must incorporate multiple indicators. Relying solely on MAs is not enough; combine candlestick patterns, volume, KD, RSI, MACD, and other tools to build a comprehensive analysis framework.

Remember a trading maxim: There is no perfect indicator, only continuously optimized trading systems. After mastering MA setup basics, the key is to keep adjusting and refining in practice to ultimately find your own trading path.