I have been trading a 3 EMA crossover system as my main entory signal along with a slow stochastic for my exit signals. Does anyone else have any experience in using a similar approach? Any opinions on using MA's instead of EMA's ?
3 is pretty fast. I used to use a 4,8, 17, and 34 ema for trading. Good for trend, but you will get killed in the chop. Even a 4 is too quick for me in hindsight. I am talking on a 5 minute chart trading indices and currencies.
I use 18 36 and 54 on 30 min charts for equities. I found that this setup eliminates a good bit of false signals and whipsaw, drawback ofcouse is that there are fewer signals each day. For entries I wait until they are laddered one on top of another and enter at the first bar that closes above or below all 3 depending on if im short or long. Then exit when the stochastic croses over and changes direction. I also found that one of the most reliable uses for this system is failed test of the 54 ma when price walks up the average and then fails to penetrate and resumes the previous trend. Any thoughts?
A trader in my firm uses a 3, 8, 24 sma crossover along with tapereading. He swears by it but I have never really tested it. I bounced back and forth using sma's and ema's and I have decided that sma's are better for my style. Ema's react too fast and create a lot of noise, imo. If you were using moving averages as support/resistance, I think simple would be best but ema's might be more effective in a crossover system. Just my two cents.... -spxdes
Sorry but I don't trade equities so I can't comment. I am considering adding the 200 sma, especially on a daily, because so many ppl look at it it becomes a sort of self fulfilling prophecy IMO.
There's something I must be missing here. Can anyone tell me the logic behind using MA's as entry signals? Everyone realizes the mathematical fact that if a stock is rising every day, its short term MA's will be above its long term ones right?
I use a 14, 50, and 200 intra-day MA's on the 1 minute timeframe, but I actually use it as locating trend and price bounces off the MA's. On my little Forex thing I got going I use a 50 and 200 MA on the 4 hour timeframe and use it to determine good trades, works pretty well with a good bit of discretion thrown into the mix.
http://www.tradertalk.com/tutorial/3x13x39.html http://www.cbot.com/cbot/pub/cont_detail/0,3206,1560+17731,00.html
These websites don't answer my question. They don't tell me WHY MA's should work or any of the logic behind using an MA. What makes it any better than looking at a chart and buying when it starts moving up (and selling with something like a trailing stop)?
Well here is what I believe. An edge, is ANYTHING that works. It doesn't matter why, if you make money, and can scale it up to make A LOT of money, then it doesn't really matter. Why do people care about moving averages, why does price react to a 200 intra-day 1 minute average, I don't know, but it does, and I'll work it for as long as it does and while it does, try to find backup systems. If it works, use it, it doesn't need to be explained. Does that make sense to you, or do you need an explination as to why it doesn't matter? Make money, that is what we do!!!