Lesson 7 of 20 · 10 min
Moving Averages
Step 1
What it is
A moving average is the average closing price over the last set of candles, drawn as a line. A 20-period average on a 15-minute chart is the average of the last 20 closes.
It lags, because it is built from the past. It does not predict anything. Traders use it as a simple way to see the direction of a trend and how far price has stretched from it.
Traders use it because it makes trend easy to see and gives a simple rule for where to look during a pullback.
Step 2
See it on a chart
A rising 20-period average, with a quiet pullback back to it.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 3
The exact rules
What must be true before entry
- Price mostly on one side of a clearly sloping average.
- A pullback back to the line.
- Lighter volume on that pullback.
What volume should show
Where to enter
Where the hard stop goes
Where the target goes
What invalidates the idea
- Price closes past the line and stays there.
- The line turns flat.
When not to take it
- The line is flat, which means there is no trend to follow.
- Price keeps crossing the line back and forth.
- Major news is due soon, or you would be trading outside your planned hours.
- You have just taken a loss and feel the need to win it back.
Step 4
Your turn: plan the trade
Price is falling below a declining 20-period average and has pulled back up to it. Mark your plan.
This setup is a short. Look at the candles and the volume. Choose a line below, then tap the chart to place it. You can also drag its label or type a price.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 5
The trap: hunting for the perfect setting
Changing the period until the line fits the past feels like research. It only teaches you what already happened. Choose one setting, write it down and judge it over many trades.
Read why journaling mattersStep 6