The 15-minute time frame is one of the most traded time frames by day traders.
The reason is its balance in showcasing short- mid-time price progression/ structure.
In the fluctuating world of trading, the search for the perfect technical indicator remains a holy grail.
Among the plethora of tools available, the moving average stands as a fundamental pillar.
The efficacy of this simple yet profound tool varies across different timeframes and types of moving averages. This article specifically explores the optimal moving average for a 15-minute chart.
- What Is a Moving Average?
- What are Time Frames?
- Trading The 15 Minutes Chart With Moving Averages
- Why The 20 Exponential Moving Is The Best For The 15 Minutes Chart
- Using The 20EMA With Other Technical Indicators
- What Is The Best Setting For Moving Averages?
What Is a Moving Average?
A moving average is one of the various technical indicators that exist in the world of trading. The primary function of a moving average is to get rid of noise and show traders a clear direction (trend).
This is done by constantly taking the average of past market closes to decipher the market’s direction.
Typically, indicators are either lagging or leading, with no in-betweens. In the case of the moving average, it is a lagging indicator since it trails behind price action.
Furthermore, moving averages can be divided into two categories. Namely, the simple moving average and the exponential moving average.
The latter reacts faster to price was emphasis is laid on more recent price closes, while the former reacts slower.
What are Time Frames?
The price of whatever asset changes/ fluctuates with respect to time. Trading platforms provide real-time data from different time scales so traders can fully understand the market’s movements.
It usually takes some time to figure out the most suitable time frame for you fully. But it all boils down to the sort of trader you are.
Day traders should stick to time frames lower than the 1hr time frame as they are most suitable to that trading style. Scalpers want to be in and out of a trade in a jiffy; it’s only right that the small/smallest time frames are utilized.
As for swinging trade, the 4-hour time frames up until the weekly is used, while position trades can go even higher than that.
The 15 Minutes Chart (Time Frame)
If the price of an asset is recorded at a 15-minute interval and the data is plotted on a chart, the result is the 15-minute time frame.
In general, data are represented on charts these days with Japanese candlesticks. On the 15 minutes time frame, each candlestick opens and closes at a 15-minute period.
The wicks of each candlestick represent the region’s price reached but neither opened nor closed there.
Once more, this time frame is only suitable for day trading since the ‘complete’ narrative cannot be viewed.
Trading The 15 Minutes Chart With Moving Averages
Either the simple moving average or exponential moving averages can be utilized. They both identify trends accurately; one is simply reacting faster to price than the other.
Keep in mind that due to this reason, the exponential moving average will be subjected to fake outs sometimes.
In this article, though, EMAs would be utilized, and the best-moving average for the 15-minute chart is the 20EMA.
Figure “20” represents the period of the EMA, which means that an average of the last twenty price closes are actively taken.
Furthermore, the 20MA can be traded as a stand-alone indicator, but it can also be used alongside other indicators or another moving average for more accurate results.
Why The 20 Exponential Moving Is The Best For The 15 Minutes Chart
To start with, identifying trends is one of the most important tasks for a trader. Moving averages, in general, do an excellent job at this.
The 20EMA is perfect for determining the inter-day trends seamlessly whilst also providing entries to ride these trends.
Below is an image of the 20EMA identifying potential entries on the 15-minute chart.
Using The 20EMA With Other Technical Indicators
For example, the parabolic SAR indicator places dots on charts which gives traders both entries and exit points.
It can be used alongside the 20EMA for an even more accurate trading strategy. Sometimes, the SAR indicates an exit way too soon, resulting in unrealized profits.
Deploying the 20EMA will give more insight as to when to exit trades since it smoothens price action.
Another use case is with the stochastic indicator, a momentum indicator that compares the closing prices of an asset to determine if it’s oversold or overbought.
Additionally, the oversold and overbought conditions are determined using a value between 1-100 that the stochastic generates.
Generally, shorts are taken in the overbought region, while longs are taken in the oversold region.
What Is The Best Setting For Moving Averages?
A moving average can be adjusted to appeal to different trading styles and the time frame in question.
Usually, those with small periods are very sensitive to price changes. While moving averages with larger periods are less sensitive to price changes.
Additionally, moving averages with very large periods stray away from recent price action.
In general, the larger the period, the farther the moving average is from the current price action. At the end of the day, it boils down to the type of trader you are.
Every moving average operates on the same basis irrespective of the period. The mean of past price closes is taken in order to predict the market’s future direction.
Different periods simply suggest more/fewer variables are considered in the calculation. While a simple moving average uses mean solely, the EMA makes more recent data important making it more complex.
Both of these give really similar results; the EMA just reacts faster giving earlier entries. But overall, it all depends on the preference of the trader in question.
The EMA is suitable for any time frame and will produce accurate results with no hiccups. However, the strength of this indicator lies in its fast response time which can only be properly utilized in lower time frames.
Summary: Best Moving Average For 15 Minutes Chart
One of the very first indicators a forex trader gets accustomed to is the moving average. As plain as this indicator might be, it gets the job done correctly.
Hence, making it suitable for trading lower time frames, especially scalping. The 20EMA is a solid choice specifically for the 15-minute time frame.
Pair it with other moving averages, indicators, etc., till a reliable system is established.