In this video, Ross from Warrior Trading explains the differences between a simple and exponential moving average, and how to use them on the Lightspeed Trader platform. Within the trading platform, active traders have the ability to add these averages to their charts to determine the overall strength of a stock as part of their trading strategy.
Hey everyone. Ross here from Warrior Trading. I want to talk to you for a moment about margin requirements. There are two basic margin requirements. The first is the account minimums that are set by the broker, and the second is the minimum in order to maintain your open positions. When you set up your account, brokers will have an account minimum. Based on the PDT rules, and you can see my separate video on PDT rules, there is a $25,000 minimum account value for all US traders that are actively day trading, which means more than three times in a five-day rolling period. So, you have an account minimum of $25,000. If you fall below that, you will have a requirement to get your account back above $25,000 in order to keep day trading. Otherwise you'll be restricted to a cash-only account, which you don't want.
Once you have your account and you're above $25,000, you know that you have four times leverage during the day. So, if you have $25,000 that means you've got a $100,000 in buying power. That means during the day you could take a $78,000 position, let's just say. However, at night the margin is only two to one. If you come up to 350, 355 just before the market closes, if the market closes and you're still holding that position, you have a margin requirement to get your account up at least half the value of that position. So, if the position is 80,000, you need to have $40,000 cash in the account, and you'll have a margin call in order to get your account up to that value. Or, what will more often happen, is that the position will be liquidated, and if you end up losing on it, that's your fault because you didn't have enough margin in there to maintain the trade.
Now, in addition to having these margin requirements, you also, if you're using margin and holding stocks overnight on margin, you have to pay margin interest rates because you're effectively borrowing money from your broker. This is one of those areas where people who hold overnight on margin are betting that they'll make more than what they'll have to pay in interest. But you have to know what the interest rates are, so you understand what the breakeven points are, because during the day there's no interest when you're using the borrowed money, but if you hold them overnight, you do have to pay interest. All right? I hope this has helped answer some questions that you may have had about margin requirements. And as usual, if you have any questions, don't hesitate to reach out. Hey everyone. Ross here from Warrior Trading. In this video, I'm going to talk about the difference between a simple moving average and an exponential moving average.
For those of you that don't understand moving averages, moving averages are the average price of a stock over a fixed period of time. So, fixed period means most people will look at moving averages either as a 10-moving average, a 20-moving average, a 50-moving average, a 100, or a very popular one is the 200 moving average. So, the 200 moving average, when it's applied to a daily chart, is the average price of a stock over the last 200 candles. That's when you're using a simple 200 moving average. It's simply the average price over the last 200 candles.
Now, in this case here, we'll look at the S&P 500 on my Lightspeed Trading platform. I'm going to go to chart parameters. I'm going to go to studies. And I'm going to add a simple moving average right here. I'm going to click add. And what you're going to see is I've got two moving averages on this chart that are both 200. This yellow line is the 200 simple moving average. This is the 200-exponential moving average. So, their prices are slightly different. Well, what you'll notice is that the exponential moving average, it weighs more recent price action more heavily. So, when a stock starts to move up, the exponential moves faster. When a stock drops, the exponential moves faster, because this more recent price action is weighted more heavily than the price action that was back here. Remember, it's a 200-period average, so it's looking at the average price over the last 200 candles but weighting more recent price action more heavily. Most active traders like using exponential moving averages because they're a little bit faster to respond to changes in price.
Now, one of the things that's important to note is that a 200 moving average, whether it's exponential or simple, on a daily chart, is not the same price as a 200 moving average on a five-minute chart. So, let me show you. Let's go here to chart parameters, again. And we're going to change this time frame from daily, down to five minutes. All right. And what you'll notice is that suddenly, our prices have changed. We'll go back to the daily. Let's mark the prices. The prices of the exponential are 270, and the simple is 274. Now let's go back to the five-minute chart. All of the sudden the prices are 246, and 247. That's because the average price of the last 200 candles on a five-minute time frame is different than the average price of the last 200 candles on a daily time frame.
So, moving averages are always based on the time frame you're looking at, and that's why it's important to use time frames that are commonly used by other traders, so you know you're looking at the same thing other traders are looking at. Traders commonly use daily time frames, 15-minute time frames, five-minute time frames, and even one-minute time frames for fast moving day trades.
So, one of the moving averages that I always use is the 200. And the others are the 20-moving average, and the 9-moving average. These are moving averages that I use on my 5-minute time frames, because, as a day trader, these provide sort of intraday levels of support and resistance. And you'll notice that different stocks respond to moving averages differently. You can see here on Facebook that this pulled back down to the 20 moving average here, this blue line, and then it squeezed back up. It pulled back to the 20 and it squeezed back up, and then it when it got below the 20, it came back to the 20, but couldn't get back above it. So, a significant place to watch here would be moving average crossovers. When it crosses above the 20, that's significant. When it crosses and closes below the 20, as it did here, that's significant.
So, some traders will use moving average crossovers as part of their strategy development or as part of confirming the strength or weakness of a stock. I generally use it just as an overall indicator of strength, maybe to help me confirm what I already suspect in a stock.
All right. So I hope this video has helped you understand the difference between exponential and simple moving averages, and as usual, if you have any questions, don't hesitate to reach out.
In this video Ross, from Warrior Trading talks about the pattern day trader rule. This rule states that traders are allowed three trades in a 5-day period if your account is under $25,000 and it is a margin account.
Active traders are continually looking at charts and the patterns that they create. Most traders want to use time frames that are most popular to determine patterns and when to potentially make a trade.
Lightspeed is a division of Lime Brokerage LLC. Lime Brokerage LLC is not affiliated with these third-party market commentators/educators or service providers. Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lime Brokerage LLC does not endorse, offer nor recommend any of the services or commentary provided by any of the market commentators/educators or service providers and any information used to execute any trading strategies are solely based on the independent analysis of the user.