High and Low Moving Average Indicator

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Moving Average High, Low & Open

A new variation on the moving average system is to calculate moving averages on the Highs, Lows or Opens, rather than on the Close.

Time Frames

Daily Highs, Lows or Opens are normally used, but the same concept may work just as well on hourly, weekly or even monthly bars. Opens are used less frequently and the discussion below focuses on Highs & Lows.

Trading Signals

Short-term

  • Enter when price closes above the moving average (High)
  • Exit when price closes below the moving average (Low)
  • Short when price closes below the moving average (Low)
  • Exit when price closes above the moving average (High)
Example

Mouse over chart captions to display trading signals.

A 13-week moving average of closing prices (not shown) has been used to identify the up-trend on Yahoo (above). The stock is then plotted with a 10-day moving average of daily Highs and an 8-day moving average of daily Lows.

  • Enter at [2] when price closes above the moving average (High).
  • Exit at [4] when price closes below the moving average (Low).

If we had used a normal 10-day moving average of closing prices, with the same closing price filter:

  • Earlier entry at [1] when price closes above the moving average.
  • Earlier exit at [3] when price closes below the moving average.
  • Then we are whipsawed, with an entry at [5] and exit at [6].

Other filters, besides closing price, may be used to further refine the system.

Evaluation

The system does better than many other moving average systems in eliminating whipsaws, because of the width of the bands; and higher volatility results in wider bands. However, this remains a moving average system with all the attendant weaknesses:

  • Late entries at moving average crossovers; and
  • Late exits, especially when the trend spikes up/down into a blow-off.

Blow-offs

Mouse over chart captions to display trading signals.

In the above chart Yahoo staged a blow-off, in late 1998/early 1999, when it accelerated into a steep up-trend. Our long-term moving averages, so good at keeping us in the trend, now let us down badly, giving exit signals between $31.50 [x], based on a normal closing price moving average, and $28.90 [x2], based on the 8-month moving average of monthly lows.

If you are thinking about adding a filter, to avoid being taken out of the trend at [x2]; forget it. No filter can save you from this:

Long-term MAs cannot be relied upon for exit signals during a blow-off.

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Late Entries and Exits

Your aim, when trend-trading, should either be:

  • If trading short-term, to enter on corrections and exit when the subsequent primary trend move expires; or
  • If long-term, to enter at the start of the trend; ride out the corrections; and exit when the trend expires.

If, when trading short-term, we wait for price to cross the moving average after a correction, in any but the strongest trends, we will lose about half of the entire up-swing. If we use moving average (High) for our buy signals and moving average (Low) for sell signals, the problem is even worse.

Example

System 1

  • On the first pull-back (or consolidation pattern) after price breaks above the moving average (High), enter [1] when price closes above the previous high and then takes out the high.
  • Exit when price closes below moving average (Low) and then takes out the low at [2].

Compare your profit of $2.20 (before brokerage and slippage) to the swing range of $14.27 (39.79 – 25.52).

Mouse over chart captions to display trading signals.

System 2

  • Enter [A] when price closes above moving average (High) and then takes out that day’s high.
  • Exit [B] when price falls (but not necessarily closes) below the moving average (Low).

Your profit increases to $5.30 before brokerage and slippage.

System 3

If we use the conventional moving average, based on closing price:

  • On the first pull-back after price closes above the moving average, if price closes above the previous high, enter [a] when it takes out that day’s high.
  • Exit [b] when price closes below the moving average and then takes out that low.

Profit increases to $7.42 (36.46 – 29.04). This is a single example and there may be times that system 3 makes a false start or exits too early in the trend, but, from what I have seen, the conventional method at least holds its own against systems based on Highs and Lows.

Setup

Look for Moving Averages (High) and Moving Averages (Low) in the left column of the Indicator Panel.
Edit Indicator Settings explains how to alter the default settings.

Formula

Exponential or simple moving averages are calculated using either the High or Low instead of closing price. The Low is often calculated with a shorter moving average than the High: to deliver quicker exit signals. If trading short, reverse the time periods; so that the High is shorter than the Low.

Forewarned is Forearmed

Divergences on Twiggs Money Flow give early warning of trend changes, combining price & volume to reflect buying & selling pressure.

Available on Incredible Charts free software. Download and receive a 30-day FREE TRIAL of our Premium Service.

High Low Moving Average

Tutorial About using High-Low Moving averages in technical analysis and how to generate trading signals based on this indicator. You will find more than 150 unique studies on our index and stock charts. Third part of these indicators is unique and could not be found anywhere else with exception of our web site. Subscribe to our stock charts (no downloadable software is needed) and you will have constant access to the stock market info and technical analysis under your fingertips. Read below About using High-Low Moving Averages in technical analysis and how to generate trading signals based on this indicator.

Technical Analysis and Proprietary Indicators

MARKETVOLUME

www.MarketVolume.com

Technical Analysis

Technical Analysis, Studies, Indicators:

High-Low Moving Average (H-L MA)

Description

High-Low Moving Average (also known as High-Low channel) is a simple indicator where moving average applied to a bar’s high and low prices instead of a bar’s close price. Respectfully, instead of one MA you will have two MAs on a chart where one represents High’s MA and second is MA applied to a bar’s low price.

Technical Analysis, Signals and Trading Systems

In similar to other moving averages way, technical analysis uses High-Low MAs to generate trading signals and to define a rend. At the same time H-L MA caries the characteristics of a channel which allows in some cases to reduce periods of choppy trading during a side-way trend.

Traditionally, technical analysis recommends using the same bar period for both High and Low moving averages. The simplest trading system based on the High-Low MA would suggest buying when close price moves above High MA and it recommends selling when close price drops below Low MA. On the QQQ stock chart below you may see an example of such trading system.

Chart 1: QQQ stock chart with signals based on H-L MA

One of the other ways of using High-Low Moving Average is to apply MACD principles by applying smaller bar period to High MA (using it as fast MA in MACD) and by selecting bigger bar period for Low MA (using it as slow MA). In this case, a simple trading system would recommend selling when High Moving Average drops below Low Moving Average and it would suggest buying when High MA raises above Low MA. On the QQQ stock chart below you may see the illustration of such simple trading system and buy/sell signals.

Chart 2: QQQ stock chart with signals based on High and Low MAs crossovers

High-Low MA’s Formula and Calculations

High-Low Moving Average is calculated in the same way as other moving averages are. The only difference is that two MAs are displayed on a chart as a channel.

HMA = MA applied to Highs

LMA = MA applied to Lows

On our index and stock charts you may select Simple, Weighted and Exponential MAs for High-Low Moving Average.

By V. K. for MarketVolume.com

Copyright 2004 – 2020 All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


Our pages are constantly scanned. If we see that any of our content is published on other website, our first action will be to report this site to Google and Yahoo as a spam website.

High Low Moving Average

The High Low Moving Average study allows you to quickly and easily compute a simple moving average of the high and low for the interval. The length of the moving average may vary for the high and low.

Some traders use this study as a measure of the market’s support and resistance areas (at what price level do buyers enter the market and support prices, or at what price level do sellers take profits and pressure the market lower?) The moving average of the high could be the resistance area, while the moving average of the low is the support area.

Like any moving average system, you can vary the rules of the trading system. Some traders prefer to buy or sell breakouts above or below the resistance and support areas, respectively. Others, tend to use the resistance and support areas as zones to establish a market position in the direction of the dominant market trend.

Generally, the high/low moving average is not a crossover system. Rather, it creates a channel about the bars on the price chart. In a market with a strong trend, prices may trade beyond the channel, either above or below. A trader could use the escape from the channel as a strong reason to establish a complementary market position.

Properties

Period1: The length of the first Moving Average. The application uses a default of 10.

Period2: The length of the second Moving Average. The application uses a default of 10.

Aspect1: The Symbol field on which the study will be calculated. The application uses a default of “High”.

Aspect2: The Symbol field on which the study will be calculated. The application uses a default of “Low”.

Content Source: FutureSource

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Copyright © 2020 · Daniels Trading. All rights reserved.

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

Technical Indicators

Stocks: 15 20 minute delay (Cboe BZX is real-time), ET. Volume reflects consolidated markets. Futures and Forex: 10 or 15 minute delay, CT.

Most Commonly-Used Periods in Creating Moving Average (MA) Lines

Moving averages are one of the most commonly used technical indicators in stock, futures and forex trading. Market analysts and traders use moving averages to help identify trends in price fluctuations, smoothing out the noise and short-lived spikes (from news and earnings announcements, for example) for individual securities or indexes. There are different types of moving averages, calculated in different ways and over different time periods, which reveal different information for traders. The type of moving average and measurement period used determine the strategies a trader implements.

Common Moving Averages Periods

Traders and market analysts commonly use several periods in creating moving averages to plot on their charts. For identifying significant, long-term support and resistance levels and overall trends, the 50-day, 100-day, and 200-day moving averages are the most common. Based on historical statistics, these longer-term moving averages are considered more reliable trend indicators and less susceptible to temporary fluctuations in price. The 200-day moving average is considered especially significant in stock trading. As long as the 50-day moving average of a stock price remains above the 200-day moving average, the stock is generally thought to be in a bullish trend. A crossover to the downside of the 200-day moving average is interpreted as bearish.

The 5-, 10-, 20-, and 50-day moving averages are often used to spot near-term trend changes. Changes in direction by any of these shorter-term moving averages are watched as possible early clues to longer-term trend changes. Crossovers of the 50-day moving average by either the 10-day or 20-day moving average are regarded as significant. The 10-day moving average plotted on an hourly chart, is frequently used to guide traders in intraday trading.

Some traders use Fibonacci numbers (5, 8, 13, 21 . ) to select moving averages.

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