A moving average is the average price over N days. The 20-day MA (trend) and 50-day MA (intermediate trend) together show direction. When the 20-day is above 50-day and price is above both, you're in an uptrend. Use this as a filter: take breakout/momentum trades in uptrends, avoid contrarian trades. Most traders don't use MAs to filter and get caught shorting in uptrends (losing trades).
- 20-day MA tracks short-term trend
- 50-day MA tracks intermediate trend
- Price above both MAs = uptrend, take long setups
- Price below both = downtrend, take short setups
- MA crossovers (20 crossing 50) signal trend shifts
The moving average is the simplest, most useful technical indicator in all of trading.
What a moving average does
20-day MA on a daily chart = average close of the last 20 days
| Date | Close | 20-day MA |
|---|---|---|
| Day 20 | $100 | $98 (calculated) |
| Day 21 | $101 | $98.50 (updated) |
| Day 22 | $102 | $99.00 |
| Day 23 | $103 | $99.50 |
The MA smooths the noise. If a stock jumps from $100 to $110 in one day, the MA rises slowly ($1–$2), showing the real trend.
The two-MA system
20-day MA: Short-term trend direction (days to weeks) 50-day MA: Intermediate trend direction (weeks to months)
| Setup | 20-day MA | 50-day MA | Trend | Action |
|---|---|---|---|---|
| UPTREND | Above price | Above 20-MA | Up | Take long breakouts |
| DOWNTREND | Below price | Below 20-MA | Down | Take short breakouts |
| TRANSITION | Crossing | Crossing | Uncertain | Avoid; wait for new trend |
| RANGE | Flat | Flat | Neutral | Take mean-reversion |
Score the Setup Before You Take It
TRADZY's Void Engine rates any setup 0–100 across 12+ variables: structure, trend alignment, volume, momentum and key levels.
Score a Setup Free →Using MAs as filters
Before every trade, check:
- Where is price relative to the 20-day MA?
- Where is the 20-day relative to the 50-day?
Example 1: Uptrend filter
- Price: $103
- 20-day MA: $101
- 50-day MA: $98
- Verdict: UPTREND. Take long breakout setups. Avoid shorts.
Example 2: Downtrend filter
- Price: $95
- 20-day MA: $99
- 50-day MA: $101
- Verdict: DOWNTREND. Take short breakdowns. Avoid longs.
Example 3: Chop filter
- Price: $100
- 20-day MA: $100 (price is on it)
- 50-day MA: $100 (20-day is on it)
- Verdict: TRANSITION/CHOP. Don't trade; wait for clarity.
MA setups
Setup 1: Pullback to MA in uptrend
- Price in uptrend ($103, above both MAs)
- Price pulls back to 20-day MA ($101)
- Entry: First close above the 20-MA
- Stop: Slightly below the 20-MA
- Target: Prior high ($105) or 2R
Why it works: Buyers at the MA support defend the trend.
Setup 2: MA crossover (trend start)
- 20-MA crosses above 50-MA (with price above both)
- Entry: On the crossover candle close
- Stop: Below the 50-MA
- Target: The next resistance level
Why it works: Crossovers mark trend starts. The first impulse after a crossover is often strong.
Setup 3: Price break above MA (trend accelerating)
- Uptrend established (price > 20-MA > 50-MA)
- Price pulls back below 20-MA but stays above 50-MA
- Entry: Breakout above 20-MA again
- Stop: Below 50-MA
- Target: All-time high or next resistance
Why it works: Trend re-confirms after the pullback.
Adjusting MA periods for different timeframes
Daily chart: 20-day, 50-day, 200-day MAs
Hourly chart: 20-hour, 50-hour MAs (equivalent period)
15-min chart: 20 × 15 min = 300 min ≈ 5 hours = 20 five-min bars
The periods scale, but the concept stays the same.
MA crossovers and false signals
Real crossover: 20-MA crosses above 50-MA on heavy volume, price closes cleanly above both
False crossover: 20-MA touches 50-MA but reverses within the same candle, price still below
Filter false crosses:
- Volume must be above average
- Close must be 2+ ticks above the MA
- Ideally, prior candle also closed above MA
FAQ
Which MAs should I use?
20 and 50 are standard. Some traders use 10, 20, 50. Some use 9, 21, 55 (similar). Test on your data and pick what works for your timeframe.
Can I trade MA crossovers alone?
You can, but entry signals are wide. Combine with volume, support/resistance, or price action for better entries.
Do MAs work on all timeframes?
Yes, but the longer the timeframe, the more powerful. A 20-MA on a daily chart is meaningful. A 20-MA on a 1-min chart is noise.
What if price is between the 20 and 50-MA?
That's chop/transition. The trend is uncertain. Skip or take only high-probability setups with tight stops.
Should I use exponential or simple MA?
SMA (simple) responds slower, EMA (exponential) responds faster. Both work. Pick one and stick with it.
How do I know when a trend is ending?
When the 20-MA flattens or starts sloping down. When price closes below the 20-MA for the first time. When the 20-MA crosses below the 50-MA. These are early warning signs. The trend isn't over, but it's weakening.
Put This Into Practice
- Score your next setup 0–100 with the Void Engine before entering
- Log the trade and tag the setup in the TradLog
- Review weekly: keep what pays, cut what doesn't
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Educational content, not financial advice. Trading involves substantial risk of loss.