A couple weeks ago for one of my first blogs on Stonks and Whatnot on 5/8 I wrote my prediction about where the S&P could be headed, seeing new ATH based on the daily chart 10-day MA crossing over the 50-day MA, amongst other bullish indicators that had me leaning toward the call side for a swing. I have found using these averages very helpful (along with volume and pivots) as a guide for trades and they have significantly helped me visualize the downside more as I admittedly can be kind of a permabull.
Here is how you can use moving averages to your benefit when searching for bullish and bearish setups:
Turn on the 10, 50, and 200-day moving average indicators: depending on the software you use, I am partial to Webull as it has been sort of my OG since I started, but make sure to set the 10/50/200 so you can see how a stock averages during these time periods. Why specifically those 3? Well it might be considered the “standard”, but I know people who use the 500-day and the 9-day; everyone is different depending on the style and how much time there is for the trade to play out.
Look at various chart time frames and where the price is relative to the MA: you can find moving average setups on shorter VS longer time frames. If you are daytrading the 5 minute chart and see a 10 to 50 DMA crossover intraday, you could purchase 0DTE calls at the money and sell the breakout if you spot it early-on. It’s trickier obviously shorter the frame, which is why I prefer to use the daily chart as a guide as you can see longer than just a few minutes of movement VS the entire day.
Find bullish signals: there are a few price-to-MA signals I look for in a bullish setup. First and foremost finding a dip, and seeing where the dip price is relative to the various living averages. So using SPY 5/8 as an example from the other week: there was a dip along with a 10DMA about to cross the 50DMA.
Find bearish signals: is the chart looking toppy, the price trading way above the 10/50/200-day MA? Has there been a significant run with zero pullback? If the daily chart is exceeding above all moving averages, you could use those strikes as put strikes for a dip.
Use moving averages as call and put strike guides: Of course moving averages are never going to guarantee predicting a trade 100%, but having these as sort of a “map” per se for potential paths for a chart to play out has helped me see the overall vision and also helped me see when I should enter / exit; being patient and waiting for a setup can be way more rewarding than just blindly entering calls and puts.
For this week you could look at SPY daily chart and see on Friday it reclaimed the 10DMA after Thursday’s big red candle that hit a low of the day around $524 just shy of $527 (which could have gotten way uglier had it not been for the stick save).
The plan for the short post-holiday week ahead would be for bulls, first passing and closing above Friday’s high of $530 to see back to the $533.07 ATH. Bears on the other hand are begging for another close below the 10DMA $527 to see a dip to $515, aka the 50DMA. So using the 10 + 50DMA as a guide you could try $527-514 puts for a couple-few weeks out; on the call side you could stay at-the-money for shorter term $529-533 calls; for June since there is technically no resistance after $533, the new ATH could go $535-540 by mid-June.
I am not bearish per se, but I would of course like a little more of a pullback to $515 before the next new ATH. But since we cannot predict the future I will be watching for the bullish and bearish signals for entry.