When trading futures I tend to be more short-term oriented than when trading stocks. I often enter trades that are intended to be speculative, meaning I will be out of the position within 24 hours or even by the end of the trading session. Generally, stock market traders and investors plan to hang onto trades for more than a day and often weeks and months.
Trading style and the indicators you choose differ depending on time frame. Long-term traders, fund managers as well as many business news programs focus on the industry standard moving averages, or 50- and 200-day MAs. However, if you are a swing (week or two) or day trader those long-term averages are often useless when creating strategy.
Time is a forcing point. As a broker and educator, I’ve noted that many of my clients speak of trades in terms of time. Some might say “I had a great day or bad week.” Or “trading has been difficult this month” or “I need a good quarter.” The time you put in watching screens will dictate the moving averages you should use.
I prefer to focus on swing trades for 5- to 10-day positions. It does not mean I always hold positions that long; I just hope the trend will be in my favor for that period. Therefore, I use shorter times for my technical indicators. When swing trading I like to use a 5-day MA against a 20-day MA. There are 5 sessions in a week and about 20 in a month. Assuming time is a forcing point, it seems logical to watch MAs that suit my preferred time frame.
When day trading, I like to use 30-minute bar charts. There are around 14 30-minute periods during a regular trading day. So, for intraday directional signals I prefer a 9- vs. 14-moving average (30-minute bars) crossover for short-term directional signals.
Another helpful hint when using MAs is to calculate the difference between the two. When the difference between the averages is below a benchmark, odds for a trend or breakout increase. Thus, buying options might be the best choice. On the other hand, when the divergence of the averages is well above a historic average, chances are the trend is near exhaustion. In this situation, option spreads may be the better bet.
Senior Futures Instructor
Market Taker Mentoring, Inc.