Transcription
Christian Quala Maggi is one of the best traders in the world. Don't believe me? He has been one of the top individual taxpayers in all of Sweden where his records can be publicly verified and he was profiled alongside me for the next market wizards book by Jack Schwagger.
He attributes most of his success to how he uses moving averages to capture large trends in stocks. As a result, I, Lance Brightstein, one of Wall Street's top traders, has the ability, nay, the responsibility to create a video discussing what moving averages are, how they work, and summarize the various ways both of us market wizards incorporate them into our own trading.
A quick story, in 2022, when I first started sharing my trading knowledge online, there is one name that stood above the rest and kept on being mentioned again and again. While I might butcher the Swedish pronunciation of that name, Christian Kalamagi, >> what >> is one of the most accomplished and beloved traders due to the hundreds of hours of live stream content he published during his meteoric rise. In those videos, he openly shares his trading strategies, and we can use it to compare and contrast how the two of us utilize moving averages, which will be particularly interesting given that Quala Maggie and I have very different trading strategies.
First, what is a moving average? A moving average or MA is an indicator that smooths price data to reveal the underlying trend by averaging past prices over a fixed number of periods. It removes noise and helps you see whether prices are rising or fading.
There are two types of moving averages. Simple moving averages and exponential moving averages aka SMAs or EMAs. Simple moving averages are the unweighted average of the last n closing prices. Each data point in the window contributes equally. For example, a 20-day SMA is the sum of the last 20 closes divided by 20. Exponential moving averages are a weighted average that gives more importance to recent prices. The formula applies a smoothing factor. A = 2 / M +1 to more heavily emphasize the more recent data. And in case you weren't paying attention in your algebra or statistics courses, that means EMAs are more responsive to recent changes in price than SMAs.
Essentially, moving averages are an indicator that to me is a form of equilibrium. They wait the most recent data to find you an average price. Many ask why moving averages work and why we use them in trading at all. Qualamagi, one of the most successful traders to ever use them, openly admits that he himself doesn't understand why they work, doesn't much care why, and simply views their efficacy as a market behavior phenomenon that has existed for decades. "Because VWAP works really well. I don't know why it just does. I don't. Why are the moving averages, why, why does the 10, 20, and 50-day moving average work so well for momentum stocks? Like, I, I don't know. Maybe it's magic. I don't really care. They just do. They worked really well a 100 years ago and they still work really well. Like, it's just how the market behaves. There's very few indicators that work."
I, however, will make an attempt to explain why I think they work. Stock prices are always alternating between periods of price expansion, also known as trends, and periods of price equilibrium, also known as consolidation. Moving averages, as a measure of equilibrium, make a good guide for what the average price is, and in turn what is an appropriate measure of consolidation. Additionally, if we break above or below a moving average, it signifies that the prior rate of trend has no longer continued. That can signify a major bullish or bearish shift. In other words, moving averages track the rate at which a stock has been moving in one direction or the other. If we hold above a moving average, we're continuing at or above that same rate. If we break below a moving average, that rate of change is decreasing.
Now, let's dive into a few other important points to raise. Like most concepts in technical analysis, moving averages operate like fractals. Moving averages work the same on every time frame and can also be applied to any trading product. Futures, stocks, and crypto all work for these. Christian mostly used moving averages as a tool on the daily chart because he was trying to catch daily swing trades. I on the other hand used moving averages on the daily chart as well as the intraday chart because I was mostly an intraday trader trying to catch intraday legs. You always want to adapt your tools to match the time frame you are trying to trade on.
One other essential point to be made in any study of moving averages is that these are only effective in certain market conditions. In my view, much of the scientific literature on technical analysis ends up concluding that technical analysis doesn't work because they are using it far too simplistically. And that is no different for moving averages. It is my belief that moving averages absolutely don't work in rangebound choppy markets. The key is to be applying them to trending tickers and markets. And by the way, I cover trending tickers and market news for the upcoming week every Sunday on live streams. So, make sure to subscribe and keep those notifications on.
What do I consider a trending market? Stocks that are either breaking out of a rangebound market or stocks that have made a massive trend and are trending back towards the moving average as a mean reversion strategy. That is exactly why in the previous clip Quali specifically cited using them in momentum stocks and uses them to capture stocks breaking out and trending.
That raises the question, how does one identify when the overall market context is favorable for applying his strategies? Christian's answer is a great one and also speaks to how moving averages can be a fantastic measure of overall trend. ">> But an easy easy market filter is just use the 10 and the 20-day. If the 10day and is above the 20-day and they both are trending higher, that's a very good market. Okay. If the 10day gets below the 20-day, it you should be a bit cautious. If the 10day starts sloping down, you should be bit more cautious. If the 10 days slopes down, the 20- day slopes down and the 10 days below the 20-day, you you should probably not, you know, buy any breakouts at all."
Like Christian, I also view moving averages as one way to define a trend. And an upcoming video, I'm going to explain what a trend is and the many ways I define them, as well as the implications that then has on my trading rules. So, make sure to subscribe. But for now, just know that I 100% agree that you can use moving averages to define a trend and base trading rules around whether we are above or below the moving averages.
Now, let's dive into more detail as to how Christian uses these. The first question most traders will ask is which moving average to use. Christian primarily uses the 10, 20, and 50 period simple moving averages, but also uses the 10 and 20 exponential moving average for capturing shorter term legs. Also remember the only moving average you guys need are the 10, 20, 50. You don't need the 100, 150. >> Occasionally Christian will also highlight a 200 day moving average. >> "Like AMD is one of my favorites. This thing has been bouncing off the 200 day for years now. And it did it again." >>
As for me, I just use two simple moving averages. I use the 20 period SMA and on my daily chart, I will use the 200 day SMA just like Qual Maggie does. Now, here's the thing. I don't think there's any magical time frame. In fact, there is one comical stream where Christian accidentally set up his charting platform wrong and was using the wrong moving average. It made minimal difference to his trading.
Each time frame and the decision between using an SMA versus an EMA will have trade-offs. If you want to collect data for your strategy, back test it, and find the optimal one, then great. That is how you should go about choosing the right period and type to use. As for me, I almost always try to stick to the default ranges that everyone else is using. I do think there is something to be said where some of these technical indicators become a bit of a self-fulfilling prophecy because everyone is looking at the same thing. For example, sake if theoretically 90% of traders are using a 20 SMA, then I want to know where 90% of traders are looking for the stock to find support. That is why I stick with the default 20 SMA that is part of my default 20 period Ballinger bands.
At the most basic level, Quala Maggie believes that for trending inplay stocks, moving averages can often serve as support in uptrending stocks and resistance in downtrending stocks. Much like how support lines get broken and can become resistance, the same dynamic exists via moving averages. This clip is an incredibly fantastic example of them doing so. Look at how nicely, look, let's take plug as an example, right? Look at how nicely the 20-day was acting as a support. And now look at how the the 20day is acting as a resistance. You see it in uptrends the 10 20 and the 50-day they act as a support in in uptrends and in downtrends they act as resistance. I could not agree more with what he said. In fact I made a similar video as part of my trading course and the link is in the description if you're interested.
Now let's get more granular as to how Kalamagi uses the moving averages in his trading particularly for his entries. And this is this is the key thing with the good setups. They keep surfing this 10 20 day moving averages. Sometimes they have higher lows, sometimes they don't. Like in this case, it didn't have higher lows. It was in that kind of a channel. Uh but many times what I look for is higher lows and they getting tighter and tighter. Like this is this is how you know this is how stocks move. They move in. They look like they it looked like a stair, right? You have a step higher sideways, step higher, sideways, step higher, sideways, step higher, sideways, step higher, sideways. And your job is to anticipate or not actually not anticipate, your job is to buy at the exact moment when the next st step higher is forming. And this is why you need to study thousands of stocks over over going back decades. You know, the stocks move the same way as today as they did 100 years ago. You just need to learn the patterns. >>
Essentially, Christian is looking for stocks that are trending that are making large moves on high volume. Essentially, stocks in play and he wants to see the moving averages proving relevant. When he does that, he is trying to buy each breakout of resistance and highlights the classical stairstep pattern. With this pattern, you buy the break of resistance as the stock breaks out of a period of consolidation, trail the position, and can continue to add on each subsequent step as shown here in the image. This stairstep pattern is one of the exact concepts I highlight in my trading course as well. So, keep on preaching my Swedish brother because we are on the exact same page here.
If that clip of his sought to summarize his method for entries, now we are going to analyze his exits. "Very easy sell rules. Okay, you you buy the opening range highs of a breakout or at least as soon as you know as you possibly can once you identify a good setup and a good breakout. Okay, then you use the lows of that breakout day as your stop. Okay, after three to five days, you can choose yourself, right? the day three, four or five, you sell a third to half move your stop to break even and then you start trailing with a 10day moving average and once you get the first close below the 10day, you sell it."
Christian will often use the 10day or the 20-day. It seems he bases this on how aggressively the stock is moving. >> "And actually, I'm going to trail NIO with the 10day moving average since it's a fastmoving stock. the faster moving names, I'm trailing with a faster moving average." >>
Allow me to break this down a bit more because I actually find that logic to be very sensical. The sharper and more severe a move is, the more likely it is to pull back and the more likely that pullback will be severe. This is also a concept I often talk about in my course and in many of my YouTube videos. By using a faster and tighter moving average, you will be giving up less of your gains if you believe that to be the case. On a steadier, more sustainable trend that isn't as severe in slope, you want to give yourself a looser stop because that will allow you to oftent times ride a more sustainable trend longer.
Now, here is one key nuance that Qualagi does that differs from me. He only gets out if the stock closes below the moving average. Look at how nicely Nvidia has been surfing the 20-day this whole move. Like there's a reason why I use 10day as my stop for like it closed below the 10day as my stop for fast moving stocks and 20-day for slowmoving stocks. Like this thing hasn't closed below the 20-day since uh March 23. Look at this thing. It's been undercutting the 20-day a couple of times, right? But it's never closed below it. Like there's a reason why these moving averages like I keep telling you about these moving averages because I I've looked back at thousands of stocks over many decades and this is how stocks move. This is how the leaders move. They don't close below the 10 and 20 day for a long long period of time. 10 day and 20 day. It's these moving averages. The purple and and and yellow line here. They're right here on the moving averages. There's a reason. There's a reason for it.
Paula Maggie waits for the bar to close below the moving average before he exits. There are of course pros and cons to waiting for the bar to close. Given the asymmetry and massive trends that Christian is trying to catch on a higher time frame, I think that makes sense for him to do. Essentially, he is being a little bit looser to justify sticking with trades longer knowing that in hot markets so often these can continue to trend tremendously and that asymmetry juices his returns. Me often trading on a shorter time frame or even an intraday time frame. Often I will immediately exit upon a break of that moving average because I expect that level to have a meaningful reaction in the form of follow-through and I can afford to be more nimble on those time frames.
One area we haven't yet addressed is that many technical analysts talk about using moving average crossovers as trade entries and exits. A fast moving average that reacts quicker to price crosses a slower moving average that moves like a baseline. When the fast moving average closes above the slower one, that's a bullish crossover. When it closes below, that's a bearish crossover. The idea is not to nail tops or bottoms, but to detect when recent price momentum has overtaken the longer trend so that you can align with the move instead of fighting it. Traders use crossovers as clean rules, as an entry exit trigger. Go long on a bullish cross, exit or flip short on a bearish one. Some use it as a trend filter. They only take long setups when the fast moving average is above the slow moving average. Others also use it as a sign of which regime is in charge. They'll turn breakout or pullback systems on only when the crossover agrees, then trail the position while the fast moving average stays above the slow one. The most commonly referenced pair is the 50 and 200 period moving average on daily charts. It is called the golden cross when the 50-day rises above the 200 day moving average and the death cross when it drops back under.
Christian's take on these. ">> I don't really look at moving average crosses ever. That's really nothing I do. I I usually look at moving averages both on the daily, weekly, 60-inut chart to one see the trend and to catch potential support and resistance areas."
Truthfully, I don't use moving average crossovers either, but I do understand the logic of them. Essentially, they are a signal that momentum and rate of change has shifted or slowed. This is almost like analyzing the first derivative rate of change. So, this could in certain situations give you a signal far before the stock actually starts to really decline. I wouldn't be shocked if there are some quant systems out there that utilize this. So, I'm not going to knock it and have not extensively back tested a ton of hypotheses for this, but neither Quall or myself pays much attention to these. I hope it's okay if I call you qual.
Now that we've done a fairly broad overview of how Christian uses moving averages, let me discuss a little bit more about how I use them in my trading. Like I said, these concepts apply to all time frames. So, I'm going to show you how I use them on an intraday basis. This was Palunteer on August 20th, 2025. The stock was in freef fall and melting lower for a few days. After an initial attempt higher off the open, we continued the melt lower and begin using the moving average as resistance. We put in a strong green reversal candle. Then that break of the moving average and break of trend was my sign that the trend might now be reversing and I used it as an entry to go big. Just like Christian discussed in his plug example, the moving average goes from being used as resistance to then being used as support and we surf it higher while we retrace the whole move. A clean clear break and close below was a great exit.
Another way I'll use moving averages is as a profit target on some of my big mean reversion plays. In fact, SMCI on February 16th, 2024 was one of my best trades of the year. And part of it was due to me shorting an exhaustion gap and recognizing that the reward on a reversal could be all the way back to that moving average on the daily chart which was a huge distance away.
It is pretty interesting to think that Christian and I learned trading totally independently but share so many of these views. For both of us, moving averages are one of the only indicators he uses and similarly Ballinger bands which contain a moving average are one of the only indicators I use. While I love Christian's content, I must admit it is notoriously unorganized with hours upon hours of live streams to sift through. This video distills a lot of his teachings for you in a concise manner. And for that, I must also thanks James Munan who has deeply researched Qualamagi's methods and helped me compile these clips.
It is wild even for me to imagine that years later I would get to present alongside Christian at Traders for a Cause in Las Vegas. Christian is as nice of a guy as he is successful. I consider him a friend who is always welcome at my home. And while I asked him to collaborate on a few projects like this video, he is choosing to take a step back because, you know, why become a finance influencer when you can just off on the massive yacht he bought using some of his trading profits and sail off into the sunset? >> "Bring me that horizon." >>
Don't worry, comment section. I know, no need to say it. I question my life decisions every single day. But fortunately for you all, I get seasick. So, I guess you're stuck with me. and I'll see you in the next video.