Moving averages?

Discussion in 'Trading' started by interdigital, Jan 9, 2008.

  1. I have never looked at moving averages, but see many people use it in their TA. My question is how can you use that when there seems to be so many different moving averages? Support and resistance levels I understand because it's clear on the chart. But with moving averages, I see people talk about 10 day MA, 12 day MA, 13 day MA, 20 day MA, 50 day MA, 200 day MA, etc. How can that work if everyone uses a different calculation?
  2. It doesn't really matter the exact moving average used.

    What is important is the side of the moving average the candlesticks are.
    This gives a pretty good estimate of the trend, or when there's no clear trend (candles cross back and forth the MA).
  3. Moving averages work "well" in a trending market environment. As you said, it's up to you which interval(s) you want to use.
  4. JBTrade


    You answered your own question; the markets aren’t going to react in a certain manner just because you placed an arbitrary moving average of indiscriminant length on your chart.

    Try this: add a moving average to any chart, and then find an instance where prices appeared to have bounced perfectly off of it. Once you’ve done that, erase the moving average, and then look for support at that same level in the actual price action - you’ll find it…

    Of course, nothing in the market is absolute, but the overwhelming majority of the time you will find this to be the case - I would even go as far as to say that your understanding of support and resistance is flawed if you have trouble seeing the correlation.

    The same goes for “trend lines” and anything else that is simply drawn on a chart.
  5. DrEvil


    I'm not sure if I understand your comment about trend lines. I think that you are suggesting that like moving averages, they are arbitrary lines drawn on a chart.?

    I would say that trend lines represent support and resistance as they are themselves constructed from multiple support and resistance levels. I don't trade off of them though, I just use them to guage direction.

    As for moving averages, personally I don't like anything on a chart that can take my eye off the ball (price).
  6. If you are looking for a fast and efficient way of losing your money then use moving averages.:)

  7. Lots of exponential moving average (EMA) values show profitable simulation results.

    Following are some results for trading (daily price data) Citigroup stock at 3 % heat over a 30.92 year period. This system buys when closing price value is greater than the EMA value and sells when closing price value is less than EMA value:

    EMA time constant 10
    Annual growth rate 2.11 %

    EMA time constant 40
    Annual growth rate 3.16 %

    EMA time constant 70
    Annual growth rate 1.44 %