Mastering the 10-Period EMA: The Core of Marty Schwartz's Trend Analysis

Marty Schwartz, the trader known as “Pit Bull,” built a legendary career on a foundation of technical analysis, with the 10-period exponential moving average (EMA) at its core. For Schwartz, this single indicator was the compass that guided him through the market’s twists and turns. He famously stated, “I always check my charts and the moving averages before taking a position. Is the price above or below the moving average?” This simple question formed the basis of his trend-following methodology.

The 10-Period EMA as a Trend Filter

Schwartz used the 10-period EMA to define the primary trend. If the price was above the 10-period EMA, he was bullish and looked for buying opportunities. If the price was below the 10-period EMA, he was bearish and looked for shorting opportunities. This clear-cut distinction prevented him from fighting the trend, a mistake many traders make. He believed that trading against the trend was a recipe for disaster, a “wish to self-destruct,” as he put it.

For example, if AAPL was trading above its 10-period EMA on the daily chart, Schwartz would only consider long positions. He would wait for a pullback to the EMA or a breakout to a new high to enter a trade. He would not short the stock, no matter how overbought it appeared. This discipline kept him on the right side of the market’s momentum.

Entry and Exit Signals

Schwartz’s entry and exit signals were closely tied to the 10-period EMA. He used it as a dynamic support and resistance level. In an uptrend, he would buy when the price pulled back to the 10-period EMA and held. This provided a low-risk entry point with a clear stop-loss level just below the EMA. In a downtrend, he would short when the price rallied to the 10-period EMA and failed.

Consider SPY in a strong uptrend. Schwartz would wait for a 1-2 day pullback to the 10-period EMA. If the ETF found support at the EMA and started to bounce, he would enter a long position. His stop-loss would be placed just below the low of the day the price touched the EMA. This tight stop minimized his risk while allowing him to capture the next leg up in the trend.

For exits, Schwartz would use a variety of techniques. He might take profits at a predetermined target, or he might trail his stop-loss behind the 10-period EMA. If the price broke below the 10-period EMA with conviction, he would exit the trade. This simple rule allowed him to ride the trend for as long as it lasted and get out when it started to turn.

Real-World Examples

Let's look at a real-world example with NQ futures. In a trending market, NQ will often respect the 10-period EMA on the 60-minute chart. A trader using Schwartz’s method would look for long entries when NQ is above the 10-period EMA and short entries when it is below. A pullback to the EMA that holds is a high-probability setup. A break of the EMA is a sign that the trend may be changing.

In a recent uptrend, NQ pulled back to the 10-period EMA at 18,500. A trader could have entered a long position with a stop-loss at 18,450. NQ then rallied to 18,800, a 300-point gain. The trader could have trailed their stop-loss below the 10-period EMA to lock in profits.

Conclusion

The 10-period EMA was the cornerstone of Marty Schwartz’s trading strategy. It provided him with a simple yet effective way to identify the trend, time his entries and exits, and manage his risk. By staying on the right side of the 10-period EMA, he was able to capture some of the biggest trends in the market and achieve legendary status as a trader. For experienced traders, mastering the 10-period EMA is a important step towards developing a robust and profitable trading system.