Complete Guide to MA Line Settings: From Definition to Practical Application

Moving averages are one of the most commonly used technical analysis tools by traders. Whether you’re a beginner or an experienced trader, learning to set MA lines correctly can significantly improve your trading efficiency. This article starts with basic concepts, helping you quickly grasp the essence of moving averages, then delves into practical applications to help you build your own trading system.

What is a Moving Average? Understand the Principle with a Chart

Moving Average (MA), also called “均線” in Chinese, is based on a simple principle—adding up all closing prices over a specific period and dividing by the number of trading days in that period to get an arithmetic mean.

Expressed as a formula: N-day Moving Average = Sum of closing prices over N days ÷ N

For example, a 5-day MA is the sum of the closing prices of the past 5 trading days divided by 5. As time progresses, each new trading day’s data allows calculation of the next average. Connecting these averages sequentially forms the moving average line you see on charts.

The core value of MA lines lies in three aspects:

First, they help traders quickly identify short-, medium-, and long-term price trends without analyzing each day individually. Second, by observing the arrangement of different period MAs, traders can accurately gauge the strength of bullish or bearish forces. Third, MA lines assist investors in finding relatively optimal buy and sell points, increasing the probability of successful trades.

It’s important to emphasize that technical analysis fundamentally involves learning about MA lines, but traders should never rely solely on a single indicator. The best approach is to combine MA lines with other technical indicators for multi-dimensional analysis.

Detailed Explanation of the Three Main Types of Moving Averages: SMA, WMA, and EMA

Based on calculation methods, moving averages are mainly divided into three types:

Simple Moving Average (SMA) uses the most basic arithmetic mean. All prices within the period are weighted equally, making the calculation straightforward.

Weighted Moving Average (WMA) and Exponential Moving Average (EMA) improve upon SMA. They assign different weights to prices in different periods—more recent prices have higher weights, exerting greater influence on the average. EMA can be understood as a special form of weighted MA.

Comparison of the three types:

Since SMA assigns equal weights, it reacts more slowly but provides a smoother trend, suitable for medium- and long-term trend analysis. WMA and EMA are more sensitive to recent price changes, reflecting market movements more quickly.

Particularly, EMA gives the greatest weight to the latest prices and uses an exponential decay calculation, making it the most sensitive to price fluctuations. Therefore, EMA can detect potential trend reversals earlier than SMA, making it popular among short-term and intraday traders.

Most trading software (like Mitrade WebTrader) automatically offers these three MA options, allowing traders to choose based on their trading style.

Quickly Master MA Settings: Find the Best Cycle for You

When setting MA lines, choosing the right period is the most critical decision. Different periods reflect different time spans of price trends; selecting the appropriate one can greatly enhance your trading results.

Common MA periods by time frame:

5-day MA (weekly) represents the average price over the past 5 trading days. This is favored by very short-term traders, as it reacts most sensitively. When the 5-day MA rises sharply and is above the monthly and quarterly MAs, it indicates a clear bullish trend, possibly signaling a bullish reversal.

10-day MA is also a short-term indicator, positioned between the 5-day and 20-day MA, offering a more balanced short-term reference.

20-day MA (monthly) reflects the average over the past 20 trading days (about one month). Its importance cannot be overstated—both short-term and long-term investors pay close attention to it.

60-day MA (quarterly) represents the average over approximately 60 trading days (about one quarter), serving as a key medium-term trend indicator.

240-day MA (annual) tracks the past 240 trading days (roughly one year), used to observe long-term trends. When short-term MA lines (like 5-day) cross below all medium- and long-term MAs (quarterly and yearly), a bearish trend is confirmed.

Layering of MA periods:

• 5-day and 10-day are short-term MAs.
• 20-day and 60-day are medium-term MAs.
• 200-day and 240-day are long-term MAs.

It’s crucial to understand that MA is a “lagging indicator”—it reflects past prices, not future predictions. Short-term MAs capture recent volatility but are less accurate for trend prediction. Medium- and long-term MAs reflect the average price over longer periods, providing more stable signals but with delayed responsiveness.

Advanced tip: In practice, MA periods don’t have to be whole numbers. Some traders use 14-day (two weeks), others 182-day (half a year). There’s no fixed standard for perfect accuracy; the key is to find the period combination that best fits your trading system. Through repeated testing and real-time validation, you can develop your optimal MA settings.

Step-by-Step Guide: How to Set Moving Averages on Your Trading Platform

Once you understand the principles and period selection, the next step is practical setup. Using Mitrade as an example, setting MA lines involves just three steps:

Step 1: Open the Trading Interface

Log in to the Mitrade app or WebTrader, and open the chart for any instrument. The platform typically defaults to 5-day, 10-day, and 15-day SMA lines—this is the most basic setup.

Step 2: Access Indicator Settings

To add, remove, or modify MA lines, click the indicator icon at the top right of the chart. A full indicator menu will appear.

Step 3: Customize Your MA Settings

In the menu, select the desired MA type (SMA, WMA, or EMA) and set your preferred period. For example, you might set 5-day, 20-day, and 60-day MAs for a multi-layered analysis framework. You can also overlay other technical indicators like MACD, Bollinger Bands, or RSI for comprehensive analysis.

Recommended MA combinations:

Many professional traders set up 5, 20, and 60 MAs simultaneously to capture short-term fluctuations, medium-term trends, and long-term directions. Some aggressive traders prefer 5, 10, and 20 to amplify short-term signals. Conservative traders might choose 20, 60, and 240 to focus on medium- and long-term trends.

Four Practical Tips: Using Moving Averages to Capture Trading Opportunities

Tip 1: Follow Price Trends to Determine Bullish or Bearish Direction

The most straightforward method is observing the position of prices relative to MA lines. When prices are above the 5-day or 10-day MA, the short-term outlook is bullish, and you might consider opening long positions. Conversely, if prices fall below these short-term MAs, it indicates weakening momentum.

For medium- and long-term investors, if prices stay above the monthly or quarterly MA, the overall trend is positive, suggesting buying opportunities; if below, exercise caution.

When multiple periods’ MAs form a “bullish alignment” (short-term MA above medium and long-term MA, all ascending), it’s a strong bullish signal. Conversely, a “bearish alignment” (short-term MA below others, all descending) indicates a sustained downtrend.

If prices fluctuate between short-term and long-term MAs, it often signals consolidation. Traders should be cautious and wait for clearer signals.

Tip 2: Capture Golden Crosses and Death Crosses

Once the overall trend is identified, the next step is to find precise entry points. The most effective method is to watch for “Golden Cross” and “Death Cross.”

Golden Cross: When a shorter-period MA crosses above a longer-period MA (e.g., 5-day crossing above 20-day), it signals increasing buying momentum and potential upward movement, suitable for entering long positions.

Death Cross: When a shorter MA crosses below a longer MA, it indicates potential downward movement, suggesting reducing positions or opening shorts.

In practice, these crossovers often precede trend reversals by one or two days, offering high-probability entry signals. For example, on EUR/USD daily chart, when the 5-day MA crosses above the 20-day and 60-day MAs (double golden cross), the bullish signal is very strong.

Tip 3: Combine Oscillators to Avoid MA Lag

A key limitation of MA lines is their lagging nature—they reflect past prices. Smart traders combine leading indicators like RSI to complement MA signals.

For instance, observe whether RSI shows divergence—such as prices making new highs while RSI fails to do so—indicating potential reversal. If divergence occurs alongside MA lines flattening or turning, it’s a warning sign of trend change.

For example, during September-October 2022, gold prices repeatedly tested lows but failed to break through, while RSI moved from oversold levels upward, and MA lines showed a bearish but flattening pattern. This divergence suggested a potential bullish reversal, prompting traders to prepare for long entries.

Tip 4: Use MA Lines as Stop-Loss References

In classic Turtle Trading systems, MA lines combined with recent high/low points serve as stop-loss levels. For long positions, if the price closes below the 10-day or 20-day low and the corresponding MA, consider exiting. For shorts, the opposite applies.

This method is objective—traders follow actual market prices without subjective judgment, reducing emotional trading and minimizing losses.

Common Pitfalls and How to Avoid Them

Trap 1: Relying Too Much on a Single MA

Many beginners obsess over one MA line. In reality, no single indicator is perfect. Short-term MAs react quickly but generate false signals; long-term MAs are stable but lag behind. Using multiple MAs together provides confirmation and reduces false signals.

Trap 2: Ignoring the Lagging Nature of MAs

Since MAs are based on past prices, they inherently lag. Relying solely on MA signals for entries and exits can lead to late reactions. Combining with leading indicators like MACD, KD, or RSI helps anticipate trend changes earlier.

Trap 3: Poor Period Selection

Blindly copying others’ MA periods without backtesting can be detrimental. The optimal MA settings depend on your trading timeframe, style, and asset. For example, a 5-minute chart may require different periods than a daily chart. The key is to test and optimize for your specific system.

Trap 4: Overlooking Volume and Fundamentals

While MA lines are powerful, they are only one aspect of analysis. During extreme market events or fundamental shocks, technical signals may fail. Always consider volume, candlestick patterns, and macroeconomic factors.

Building a Complete Trading System: MA Is Just the Beginning

As mentioned, no indicator is perfect—only continuously optimized trading systems can succeed. A comprehensive system should include:

Level 1: Trend Identification—using multi-period MA arrangements to confirm overall direction.

Level 2: Entry Signals—combining MA crossovers, oscillator divergences, and other confirmations to improve win rates.

Level 3: Risk Management—setting appropriate stop-loss levels and position sizes to control losses.

Level 4: Take Profit Strategies—deciding when to partially or fully exit to lock in gains.

Level 5: Dynamic Optimization—regularly backtesting and adjusting MA settings to adapt to changing markets.

Remember, MA settings are just tools in your toolbox. The real key to success lies in your discipline, risk awareness, and psychological resilience. Keep learning, practicing, and staying humble—these are the paths to becoming a top trader.

Whether you choose the 5-20-60 combination or other setups, the most important thing is to find your rhythm and stick to it. When your MA lines are integrated into a complete trading system, you will have found your own trading edge.