Moving Averages Trading Using The 10-20-30 Rule

10-20-30-moving averages strategy

Moving averages trading is a concept of trying to time the trend of the underlying security to pick movements up and down in the security to profit by that trend. When using option strategies for income, applying moving averages trading can be especially profitable. This article examines using the 10 day simple moving average in combination with the 20 and 30 day exponential moving averages to time put selling opportunities in stocks. By using the 10-20-30 day moving averages trading strategy an investor can time the movement in a security such as a stock to pick the best moment to apply option strategies for income such as selling puts and buying them back or closing them early for a profit.

This strategy could easily be used for any type of security and not just for put selling opportunities but to also engage in covered calls, naked (uncovered) calls, credit spreads and simple buying and selling of a security. I have used this moving averages trading strategy for years with a variety of option strategies for income and capital gains.

This moving averages trading strategy was developed after reading the moving averages trading strategy of selling covered calls by Dr Samir Elias in his book Generate Thousands.  After reading the book, I spent some time looking at the moving averages trading strategy and studied various stocks and attempted to apply the strategy to see if it was effective. While there is never a guarantee, often there is a pattern that option strategies for income can benefit from. Over the course of years I added more technical indicators to the 10-20-30 moving averages strategy until it was refined to the point where I can use it for all aspects of trading which includes selling options, both puts and calls, buying options, both puts and calls, spreads, covered calls, as well as trading stocks or ETFs.

Moving Averages Trading For Option Selling

10-20-30 Moving Averages Article Overview

The 10-20-30 Moving Averages Trading Strategy uses moving average cross-over points on a stock chart to try to pinpoint specific times to sell Covered Calls, sell Puts, and buy back both Covered Calls and/or Puts that have been previously sold. The objective of this type of moving averages trading strategy is to capture the majority of the value of the sold option.

Who Might Consider Using This Moving Averages Trading Strategy

A) Long term holders of stocks, to decide when may be the best possible time to sell a covered call with a higher chance of not being exercised.

B) Long term holders of stocks, who have sold covered calls AND want to determine the best time to buy back the covered call as they DO NOT want their stock exercised.

C) Investors who write Naked (Uncovered) Puts and Naked (Uncovered) Calls for income with the objective of NOT being assigned the underlying stock but just earning the option premium.

D) Any investor who has a financial investment in everything from equities to bonds to ETFs and even forex. Where ever charting is available, the 10-20-30 moving averages trading strategy can be applied.

E) Any investor using a wide variety of options strategies for income and/or capital gains.

Moving Averages Definitions:

Simple Moving Averages (SMA) – A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term moving averages respond quickly to changes in the price of the underlying, while long-term moving averages are slow to react. In other words, this is the average stock price over a certain period of time. Keep in mind that equal weighting is given to each daily price. Many traders watch for short-term moving averages to cross above longer-term moving averages to signal the beginning of an uptrend. Short-term moving averages (e.g. 10-period SMA) act as levels of support when the price experiences a pullback. Support levels become stronger and more significant as the number of time periods used in the calculations increases.

Exponential Moving Averages (EMA) – A type of moving average that is similar to simple moving averages, except that more weight is given to the latest data. Exponential moving averages are also known as “exponentially weighted moving averages” or EMA for short. These types of moving averages reacts faster to recent price changes than simple moving averages. The 12- and 26-day EMAs are the most popular short-term moving averages, and they are used to create indicators like the moving average convergence divergence or MACD for short and the percentage price oscillator or PPO for short. In general, the 50, 100 and 200, day exponential moving averages or EMAs are used as signals of long-term trends either up or down in the market.

Select this Moving Averages link to read more about the concept behind moving averages.

 

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