A lot of people think lagging indicators are shit. But sometimes a 10sma is more insightful than the last price. Because there is inherent randomness on a step by step basis. Price action on its own can often feel like flipping a coin in the short term, with no clear pattern due to market microstructure or random fluctuations. Even if the coin is biased, it’s going to be tough to distinguish noise from signal in a small sample. An SMA smooths out these movements, giving a clearer picture of the underlying trend or momentum. Just a simple and concrete example … Most surprises (outliers) happen on the 200 sma’s side. We mostly see big up moves on underlyings above their rising 200 sma and inversely.
ok but what "causes" it to be respected? The moving average itself causes itself to be respected like a recursive acronym?
Human behavior. It matters not that most trades are done by computers. Computers are programmed by humans. Anything we touch will be affected by us. Until we change as humans price movement will remain the same. Technology can speed or even slow things down but, in the end, the same pressures that form the patterns are based on human DNA as we humans respond to changes in price, and we enter markets becoming players. Individual retail traders' engagement in the market does little in terms of price movement unless they are trading institutional size. But collectively individuals' engagement the market does have a minor effect. Humans respond to supply and demand like we always have. From way back in the 20's 50's and now in 2024. Our response creates pressures, those pressures create patterns. Patterns can fail too and that in itself becomes another pattern. They fail because no one not even the institutions know all the variables and nor do they know when those variables will enter the market that can cause a certain pattern to fail or be successful. This is why being highly proficient in reactive price action using various techniques to be employed as price like a river creates in own pathway. There is no noise. It all, even a 1 tick movement, happens for a reason. We cannot know the "why" (most of the time) but we can "see" and observe "how" movement takes place and project that into the near future and then watch and see if that projection comes to fruition. This is true because markets resist change (JUST LIKE PEOPLE DO BECAUSE THEY ARE MADE BY PEOPLE) therefore they have inertia (tend to keep doing what they are doing until an outside force strong enough changes that) and momentum. There is always a bullish and a bearish response to any movement regardless of what actually caused the movement. The charts show us which side is winning at least momentarily. We get somewhat of an advance view so to speak. Watch my video yesterday where I lost on an averaged down position trading the MNQ. I was betting on a pattern that a BO of a TR would fail as it does in 80% of the BO attempts. But it was NOT failing but stalling outside the BO point creating gaps between the lows of bars and the BO point (i.e. the top of the TR). So immediately when I saw pressure coming in I simply just exited the position losing around 98 points then loaded up with enough size to offset the loss and went in the newly established direction betting there would be enough momentum to get back my loss. So, in a few minutes I had my loss back and up around 53 points too. It matters not that this was MNQ. It could have just as well been ES or NQ. The movement is the same. Look at it this way. A BO of anything is either going to stall, fail, or be successful moving in a new direction. So, if I as a retail trader have different techniques developed to employ with whichever scenario comes to fruition then I should theoretically be able to capitalize on either scenario providing I am disciplined and my trading size is compatible with my account size. But we as humans with emotions are sometimes prone to errors. Can we correct them? Can we correct them quickly to mitigate damage? The pressures that form patterns in the market will do so with or without our individual participation. That is, the market knows not nor cares that I have 1 contract or 20 in play. It all is Potatoe chip money. The markets are a battle between institutions attempting to take sizeable amounts of money from each other. Each one develops their own strategies. At any given point in time there are bullish and bearish institutions at play. One side wins for a while then the other side wins for a while. That means that for a while one side is winning and the other is losing. Then it flips. That is what creates the market probes that in turn create the patterns that form such as triangles..TRs..flags..PBs etc. It is also what makes those patterns end and a new patterns emerge. All patterns are born and all patterns die. The old gives way to the new.
Nothing causes it to be respected, but several things can cause it to appear to be respected (e.g. if its position happens to coincide with an area of support or resistance).