Basic SMA of indicator question

Discussion in 'Technical Analysis' started by AbsoluteZero, Oct 1, 2012.

  1. I'm very new to trading, and have a simple question.

    Does an indicator's SMA provide any support or resistance for the indicator, and in effect, the price?

    Thank you.

    If i am posting this in the wrong place I apologize.
  2. Lucrum


    People who use MA's swear they do.

    Many years ago, before computer charting software, the community probably paid as much attention to daily price charts as anything else.
    On a daily chart a 20 period (day) MA represents the average price for one month of trading. I could see some relevance here, maybe.

    50 and 200 period MA's on DAILY charts have a fairly wide following. In and of themselves I can't think of anything particularly magical about either BUT they along with the 20 MA seem to have a self fulfilling prophecy of sorts going for them because of wide following. ON THE DAILY charts. Apply the same period MA's to ANY other time frame and IMO the MA represents nothing but a MA of price. NOT support or resistance. Any price action that implies otherwise is almost certainly coincidence.
  3. AbsoluteZero - Absolutely zero.

    Run a backtest, or just play with some yahoo finance data in excel.

    Not rocket science, but a good little iq test.
  4. WD40


    if life is so naively simple, eveybody would all be a millionaire in his first year of trading.
  5. WD40


    Does an indicator's SMA provide any support or resistance for the indicator, and in effect, the price?

    sure it does

    just think, if the current price is trading above the average of previous 5 days' price, don't you think it means something? I would think the price is trending up. ie. the 5 SMA can be looked at as a support. If it is not a support, the price would have traded below it, wouldn't you think? If the price cannot trade below 5 SMA, then the 5 SMA must be the support.
  6. It may or it may not. It depends on many other factors. This is easy to backtest on broker platforms.
  7. Lucrum


    How and or why?
  8. Handle123


    Moving averages can be said they are flexible trendlines, and many use them as a place to "bounce back" in the direction of original trend. So it can also be said they are self fulfilling similar to Gann/Fib retracements.

    But for every trader, moving ave's can be used in different ways.
  9. Lucrum


    OK, but that doesn't answer my question. How and or why would a moving average of N periods applied to X time frame define where there is pent up demand or supply of buyers/sellers?
  10. Moving averages got nothing to do with self fulfilling prophecies or anything of that nature.

    They are mathematical averages and just like any average it's representation in charts is important.

    The problem lies in identifying how price is behaving towards them in the various timeframes.

    A trending market won't behave the same towards moving averages like a market that is ranging or reversing from a previous trend, however the prerequisite examination is the responsibility of the trader and not of the moving average itself.

    ET is loaded with people that tend to critique just about anything under the sun, people just don't know how to say "I just don't know" so instead we get a lot of nothing or much worse misinformation.

    It's just incredible to witness how dumb some look when responding to trivial questions but what's even more incredible is how they tell the wrong tale with so much authority.
    #10     Oct 2, 2012