Hi everyone and welcome back to this wealthy education video on how to use exponential moving averages
the exponential moving average as we talked about at the end of our last video can give us a support
and resistance level to trade stocks that are moving up in an uptrend or trending down.
So let's talk about the exponential moving average a simple moving average is calculated by adding together
prices in a given timeframe and dividing by the number of timeframe.
So 20 day simple moving average would take the closing price for the last 20 days.
Add them all together and then divide by 20.
That EMEA or the exponential moving average is calculated in the same way except the closer in time
timeframes.
So the closer days are given more weight than further out days.
So yesterday's closing price would be given more weight than the day before which would be given more
weight than the day before we can use the maze in a couple of different ways we can use and EMEA as
a support or resistance indicator or we can use two emails with different timeframes to get an indicator
that will give us a buy and sell signal and I'll show that to you on a chart and just a moment but will
have a fast line which will be represented by the lower number of timeframes and we'll have a slow line
which will be represented by a higher number of timeframe.
So for example we could have a 20 day line which would be our fast line and a 50 day line which would
be our slow line.
You hear of two particular types of moves with an A.M.A..
One is called the Golden Cross.
On the other is called The Death cross the Golden Cross is when the 50 day exponential moving average
crosses above the 200 day exponential moving average and the death crosses the opposite is when the
50 day EMJ crosses down below the 200 day EMJ.
And these are two types of crosses that are paid for tickler attention to with the S&P 500 or the Dow
Jones industrial average.
But they can also come into play in individual stocks.
So let's look at the Amay on a stock chart.
Let's use a chart of Wells Fargo to demonstrate how we will use the exponential moving average.
So you type in WFC and the upper left that gives us Wells Fargo we move over to indicators type in E
M A.
It comes up as moving average exponential.
We want to click that go to format our first going to look at the 50 day exponential moving average
we hit Okay.
And this brings up the 50 day exponential moving average with the exponential moving average.
We want to be short or not long.
The stock when it's trading under the exponential moving average and we want to be long the stock when
it's trading above the DMA.
So we start at the beginning of the chart we see the stock is below the 50 day exponential moving average
and this and a down trend now at a downtrend line here
and it's below the EMEA So we're used to EMI as our support and resistance level.
When the stock moves above the EMEA
as it does here
we would get long the stock the stock moves from 54 to around the 56 level comes back and closes below
the EMEA Muris back again positive through the EMEA and then comes back through the 50 day EMEA again
to the downside.
So he may have taken a couple of trades here that were losing trades or we did not make very much money
on these trades.
And then the stock moves above the IIM-A again here in June
closes above the IIM-A in July so we're still above or still long.
The stock will get a move from around the 55 level up to around 59 before the stock gives us a cell
signal
here in September.
And then Wells Fargo moves to the downside.
So we can see in the uptrend
the stock is generally above the IIM-A and that is the stock Krause's to the downside where you get
a downtrend.
And the stock.
So that's how we would use a single EMJ to give us a signal as to whether the stock is moving up or
down.
Now let's change our EMEA.
We're going to go to format again and we're going to use a 10 day EMEA
which is going to be our sace line.
We're going to add another IIM-A.
So go back to indicators type in EMEA again click on moving average exponential.
Now for our second EMEA which is going to be blue run I make that a 20 day EMEA.
Here we see the 10 day crossing the 20 day and giving us our buy and sell thing here or we marked it
earlier.
We have the 10 day moving above the 20 day after the stock had been in a downtrend.
It stays above the 20 day until June we get across to the downside.
And then another cross to the upside as a stock is an uptrend here.
So by using two different e-mails we get a little clearer signal as opposed to just using the single
EMEA by itself.
And as we can see here that 10 day crossing the 20 day to the downside would have given us a signal
that the stock was moving into a downtrend or that we would not want to be long with the stock if you
want to generate more trade signals with your IIM-A you can use a shorter timeframe.
So in this case we're using a 10 day and a 20 day but you can use a five day and a 10 day and you'll
get more buy and sell signals.
And if you want fewer buy and sell signals because you're trading on a longer time frame and you don't
want to move in and out of the stock as regularly then you would use a larger timeframe.
So you could use a 20 day and a 40 day and I would give you fewer buy and sell signals in the stock.
So that's how we use the single DMA as well as the combines to timeframe EMEA and the stock of Wells
Fargo.
Thanks for watching this video on the exponential moving average and our next video we're going to talk
about the moving average convergence divergence indicator which is a particular kind of exponential
moving average and how we can use the Mac D to improve our trading.
Thanks for watching this video and I look forward to seeing you in the next video.