When dealing with a prop firm, you must be smart. You don’t have the option to start fresh after blowing up your account. Prop companies are looking for disciplined, reliable traders who can control risk and turn a profit. Among the best methods to do that? Averages that move.
Swing traders can use moving averages, which are straightforward but effective tools, to spot trends, enter at the ideal moment, and prevent needless losses. We’ll explain in this tutorial how to apply them to swing trading techniques for prop companies.
Why Moving Averages Matter in Swing Trading
The main goal of swing trading is to profit from brief to moderate price changes. You’re not holding positions for months, nor are you scalping for little returns. Instead, you want to spend a few days to a few weeks riding the trend.
Price swings are reduced by moving averages which makes it simpler to see trends and important levels. You can concentrate on the long term rather than being sucked into the detail. That means a prop firm trader will make better trades and have a better chance of winning.
The Best Moving Averages for Swing Trading
While there are many moving averages available, not all of them are effectively utilized for swing trading. These are the main ones you have to concentrate on:
Simple Moving Average (SMA)
The SMA determines the average closing price over a predetermined time frame. It’s excellent for seeing broad patterns but it responds slowly to shifts in price. The following are typical SMA settings for swing trading:
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50-SMA: A solid mid-term trend indicator.
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100-SMA: Confirms the direction of the longer-term trend.
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200-SMA: Ultimately, a price above it indicates bullish conditions while one below it indicates bearish ones.
Exponential Moving Average (EMA)
The EMA is more responsive since it puts greater emphasis on current pricing. Due to its ability to provide faster inputs and exits, swing traders love it. Common configurations:
9-EMA: Ideal for identifying sudden changes in momentum.
21-EMA: A balance between dependability and speed.
50-EMA: Frequently used as a level of dynamic resistance or support.
Hull Moving Average (HMA)
The HMA smoothest price activity and decreases latency. Though less popular than the SMA or EMA, it can be useful for traders searching faster signals with less noise.
Swing Trading Strategies Using Moving Averages
Now that you are aware of which moving averages are important, let’s discuss their use in actual trading situations. The following are some standard techniques:
The Moving Average Crossover Strategy
This is a simple strategy: a buy is indicated when a shorter moving average crosses above a longer one. It is a sell indication when it crosses below.
How to use it:
The 9-EMA and 21-EMA are better for quicker installations.
An upward trend is indicated by a bullish crossover (9-EMA crossing above 21-EMA).
A downward trend is indicated by a bearish crossover (9-EMA crossing below 21-EMA).
Verify the price and volume movements before making a trade.
This approach is effective for prop traders who require methodical, unambiguous entries.
Trend Following with the 50-EMA
If you want to keep things simple, just follow the 50-EMA.
How to use it:
The price should be above the 50-EMA, so look for opportunities to buy.
If the price is below the 50-EMA, watch for possibilities to short.
Entry points should be price pullbacks to the 50-EMA.
For traders who choose higher probability setups over frequent transactions, this is an excellent technique.
The Dynamic Support & Resistance Play
Moving averages can serve as dynamic support and resistance levels in addition to being useful for identifying trends.
How to use it:
If the price pulls back to the 50-EMA or 21-EMA and holds, it often bounces, making for a great entry.
Look for confirmation with candlestick patterns (like pin bars or engulfing candles).
If the price slices through the moving average aggressively, it may be time to exit.
This strategy works well in trending markets and helps prop firm traders manage risk effectively.
The Reversion to the Mean Strategy
Markets move in cycles. Prices often return to their moving averages before continuing in the trend direction. This is known as mean reversion.
How to use it:
If the price moves too far away from the 50-EMA or 200-SMA, expect a pullback.
Wait for signs of exhaustion (like RSI overbought/oversold signals or reversal candlesticks).
Enter when the price starts reverting toward the moving average.
This strategy can be a game-changer in choppy or ranging markets.
Risk Management: The Prop Firm Requirement
Prop firms are strict when it comes to risk. They don’t want traders taking reckless bets. Here’s how to manage risk effectively using moving averages:
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Stop Loss Placement: Put stops just below a moving average for long trades and just above for shorts. If the moving average breaks, it’s a sign the trend is failing.
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Position Sizing: Never risk more than 1-2% per trade. Moving averages help define logical entry and exit points, keeping risk under control.
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Trade Confirmation: Don’t blindly follow moving averages—combine them with price action, volume, and market structure for better accuracy.
The Bottom Line
Moving averages are a must-have tool for any swing trader working with a prop firm. They help identify trends, provide solid entry and exit points, and act as dynamic support/resistance levels. Whether you’re using crossovers, trend-following strategies, or mean reversion plays, these indicators can give you a serious edge.
