10-Day Moving Average: Definition, Calculation, & Strategies

Stock trading can be profitable. However, that’s the case only if you do things right. Hence, you need the right strategy to help you make the best decisions.

Among others, one thing you can use is the 10 day moving average strategy. It’s a technical analysis tool that allows an assessment of current market conditions based on historical data.

Whether you’re a new or expert trader, the 10-day moving average is a popular strategy to implement. It’s simple to use. In addition, it gives relevant information about price movements, making it highly useful.

What is the 10-Day Moving Average?

The name itself should already give you an idea about what a 10-day moving average is. Basically, it’s the average price over the last ten trading days. It’s a kind of technical indicator that has been tried and tested in the past.

You can use the 10-day moving average for interpreting price movements. With the resulting moving average, you can have an idea of how much is the approximate price.

Like other moving averages, a 10-day moving average cuts noise. It provides a simple way to look at the price movement.

How Does the 10-Day Moving Average Work?

In the simplest sense, the 10-day moving average works by calculating the average price over the last ten trading periods. The calculation is also simple, which we’ll talk about at the end of this guide.

After computing the 10 day moving average stocks, it is plotted on the chart. Meanwhile, with every new computation, a new dot appears.

At the start of every new trading day, the price from the oldest trading day drops out of the computation. Hence, it works by computing a rolling average to always represent recent data.

10 Day Moving Average Strategy

The 10-day moving average can send strong sell signals. Hence, you’ll know when it’s time to exit the position, which is when the price is good. Otherwise, it might be too late, resulting in a loss.

More so, it can be useful when implementing crossover strategies. When a 10 day moving average crosses 50 day moving average, which is longer-term, the stock can be bullish. The same thing is true when the 10 day moving average crosses 20 day moving average. On the other hand, if it is lower, then the market can be bearish.

In the chart example below, our Auto Harmonic Trading Software detects and prints a Bearish Bat Pattern. But the entry is much later when confirmed by the 10 Day EMA Cloud in Blue crossing below the 50 Day EMA Cloud in Purple (where the first yellow arrow is). The exit for the trade is when the 10 EMA Cloud moves above the 50 EMA Cloud.

10 day moving average strategy

Also, you must note when the strategy can fail, so you’ll know when to not use it. For example, it can fail during a late entry on a breakout. In addition, the strategy may also not work during a sideways market. There are no actual trends during the latter.

How To Use the 10-Day Moving Average For Your Benefit

One of the most important is to know when you can use it. Many experts recommend that it’s best when you use it for morning trades. This is also a good time because it’s when most of the stocks are moving in almost the same patterns.

You can also use the 10-day moving average for the identification of support and resistance levels. Falling and bouncing indicate support. However, going in the opposite direction shows resistance.

Additionally, you can use it for spotting buy and sell signals. By understanding the chart, you’ll know the right time to enter and exit. A price crossing the 10-day moving average is often a sign of a buying opportunity. Going below it, however, can represent a good time to sell.

10-Day Moving Average Calculation

The 10 day moving average formula is straightforward. All that you need to do is add the closing prices over the last ten periods. Once you have the sum, divide it by ten, and you will get the moving average for that period.

It can get more complicated when you use it for other technical analysis tools, such as the 10-day exponential moving average. However, that’s a topic we have to talk about in another post.


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