WEBVTT 00:01.350 --> 00:07.840 Hi everyone and welcome back to this wealthy education video on how to use exponential moving averages 00:08.590 --> 00:14.350 the exponential moving average as we talked about at the end of our last video can give us a support 00:14.440 --> 00:21.310 and resistance level to trade stocks that are moving up in an uptrend or trending down. 00:21.310 --> 00:28.510 So let's talk about the exponential moving average a simple moving average is calculated by adding together 00:28.510 --> 00:33.090 prices in a given timeframe and dividing by the number of timeframe. 00:33.340 --> 00:40.180 So 20 day simple moving average would take the closing price for the last 20 days. 00:40.480 --> 00:43.530 Add them all together and then divide by 20. 00:43.860 --> 00:53.380 That EMEA or the exponential moving average is calculated in the same way except the closer in time 00:53.770 --> 00:54.880 timeframes. 00:55.030 --> 01:01.390 So the closer days are given more weight than further out days. 01:01.390 --> 01:09.670 So yesterday's closing price would be given more weight than the day before which would be given more 01:09.670 --> 01:15.760 weight than the day before we can use the maze in a couple of different ways we can use and EMEA as 01:15.760 --> 01:25.240 a support or resistance indicator or we can use two emails with different timeframes to get an indicator 01:25.540 --> 01:31.540 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 01:31.540 --> 01:39.940 have a fast line which will be represented by the lower number of timeframes and we'll have a slow line 01:41.180 --> 01:44.260 which will be represented by a higher number of timeframe. 01:44.270 --> 01:51.080 So for example we could have a 20 day line which would be our fast line and a 50 day line which would 01:51.080 --> 01:52.390 be our slow line. 01:52.550 --> 01:57.770 You hear of two particular types of moves with an A.M.A.. 01:57.770 --> 01:59.390 One is called the Golden Cross. 01:59.420 --> 02:06.620 On the other is called The Death cross the Golden Cross is when the 50 day exponential moving average 02:07.050 --> 02:15.500 crosses above the 200 day exponential moving average and the death crosses the opposite is when the 02:15.500 --> 02:21.990 50 day EMJ crosses down below the 200 day EMJ. 02:22.160 --> 02:30.050 And these are two types of crosses that are paid for tickler attention to with the S&P 500 or the Dow 02:30.050 --> 02:31.540 Jones industrial average. 02:31.760 --> 02:35.400 But they can also come into play in individual stocks. 02:35.420 --> 02:37.860 So let's look at the Amay on a stock chart. 02:38.630 --> 02:45.000 Let's use a chart of Wells Fargo to demonstrate how we will use the exponential moving average. 02:45.080 --> 02:55.480 So you type in WFC and the upper left that gives us Wells Fargo we move over to indicators type in E 02:55.540 --> 02:56.460 M A. 02:56.790 --> 03:00.110 It comes up as moving average exponential. 03:00.130 --> 03:10.130 We want to click that go to format our first going to look at the 50 day exponential moving average 03:11.550 --> 03:12.950 we hit Okay. 03:13.080 --> 03:18.900 And this brings up the 50 day exponential moving average with the exponential moving average. 03:19.000 --> 03:22.750 We want to be short or not long. 03:22.810 --> 03:29.520 The stock when it's trading under the exponential moving average and we want to be long the stock when 03:29.590 --> 03:32.990 it's trading above the DMA. 03:33.370 --> 03:40.570 So we start at the beginning of the chart we see the stock is below the 50 day exponential moving average 03:40.950 --> 03:45.130 and this and a down trend now at a downtrend line here 03:49.050 --> 03:54.490 and it's below the EMEA So we're used to EMI as our support and resistance level. 03:54.620 --> 03:57.320 When the stock moves above the EMEA 04:02.740 --> 04:03.700 as it does here 04:06.950 --> 04:16.720 we would get long the stock the stock moves from 54 to around the 56 level comes back and closes below 04:17.680 --> 04:27.740 the EMEA Muris back again positive through the EMEA and then comes back through the 50 day EMEA again 04:27.800 --> 04:29.210 to the downside. 04:29.210 --> 04:36.170 So he may have taken a couple of trades here that were losing trades or we did not make very much money 04:36.170 --> 04:37.160 on these trades. 04:38.230 --> 04:44.570 And then the stock moves above the IIM-A again here in June 04:50.500 --> 04:54.790 closes above the IIM-A in July so we're still above or still long. 04:54.790 --> 05:03.190 The stock will get a move from around the 55 level up to around 59 before the stock gives us a cell 05:03.190 --> 05:03.730 signal 05:07.850 --> 05:10.120 here in September. 05:10.490 --> 05:13.370 And then Wells Fargo moves to the downside. 05:13.600 --> 05:15.220 So we can see in the uptrend 05:17.880 --> 05:26.550 the stock is generally above the IIM-A and that is the stock Krause's to the downside where you get 05:26.550 --> 05:27.600 a downtrend. 05:28.410 --> 05:32.610 And the stock. 05:32.740 --> 05:39.130 So that's how we would use a single EMJ to give us a signal as to whether the stock is moving up or 05:39.130 --> 05:39.750 down. 05:40.090 --> 05:42.420 Now let's change our EMEA. 05:42.490 --> 05:48.400 We're going to go to format again and we're going to use a 10 day EMEA 05:51.480 --> 05:54.000 which is going to be our sace line. 05:54.000 --> 05:56.100 We're going to add another IIM-A. 05:56.100 --> 06:03.780 So go back to indicators type in EMEA again click on moving average exponential. 06:03.950 --> 06:16.800 Now for our second EMEA which is going to be blue run I make that a 20 day EMEA. 06:16.970 --> 06:25.250 Here we see the 10 day crossing the 20 day and giving us our buy and sell thing here or we marked it 06:25.280 --> 06:27.330 earlier. 06:27.430 --> 06:32.710 We have the 10 day moving above the 20 day after the stock had been in a downtrend. 06:32.800 --> 06:39.260 It stays above the 20 day until June we get across to the downside. 06:39.430 --> 06:47.100 And then another cross to the upside as a stock is an uptrend here. 06:47.120 --> 06:54.830 So by using two different e-mails we get a little clearer signal as opposed to just using the single 06:54.830 --> 06:56.180 EMEA by itself. 06:56.420 --> 07:04.770 And as we can see here that 10 day crossing the 20 day to the downside would have given us a signal 07:04.770 --> 07:11.520 that the stock was moving into a downtrend or that we would not want to be long with the stock if you 07:11.520 --> 07:17.870 want to generate more trade signals with your IIM-A you can use a shorter timeframe. 07:17.880 --> 07:23.920 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 07:23.940 --> 07:26.180 get more buy and sell signals. 07:26.370 --> 07:32.070 And if you want fewer buy and sell signals because you're trading on a longer time frame and you don't 07:32.070 --> 07:37.650 want to move in and out of the stock as regularly then you would use a larger timeframe. 07:37.770 --> 07:44.040 So you could use a 20 day and a 40 day and I would give you fewer buy and sell signals in the stock. 07:44.070 --> 07:52.510 So that's how we use the single DMA as well as the combines to timeframe EMEA and the stock of Wells 07:52.510 --> 07:53.850 Fargo. 07:53.860 --> 07:59.320 Thanks for watching this video on the exponential moving average and our next video we're going to talk 07:59.320 --> 08:06.010 about the moving average convergence divergence indicator which is a particular kind of exponential 08:06.010 --> 08:12.190 moving average and how we can use the Mac D to improve our trading. 08:12.200 --> 08:15.690 Thanks for watching this video and I look forward to seeing you in the next video.