It isn't that it is respected. It is the bearish and bullish outlook by the institutions at that particular moment in time. It is actually "created" by them. The pressures they apply in the markets as they are at tug of war with each other (bulls wanting a bullish BO and bears wanting a bearish BO) create not only MAs but any other pattern one wants to dream up or invent. The patterns and the other indicators such as MAs just indicate what is happening at that particular moment. Nothing last forever. They will all be born and they all end. The market is a continuous flow of pressures. All our invented indicators are lagging but they do help show what is happening at that moment in time. But that is not a blanket guarantee of the future. MAs indicate the flow to a measure but the probes take place usually pretty quickly so at least for a scalper he has to be "johnny on the spot."
The moving average(s) are a psychological crutch, just like charts in general, that make it easier to see the trend when your mind is beginning to panic.
VWAP is respected because the bulge bracket does guaranteed VWAP contracts. That means premium/discount to volume weighted is the bank's profit net of weighted average fills (where retail is offered positioning).
Trading is as much psychological as it is technique or strategy. Because we are human. We have emotions, feelings, reasoning abilities. One of the hallmarks of TR behavior is confusion. When there is confusion price is likely in a TR. Maybe not on the particular TF one is looking at but on some TF it likely is a TR. Take PBs and TRs. An example: An established TR of 20 bars sideways movement may simply be a PB on a 5m or 15m chart. When that PB on the larger TFs then continues the previous trend because it was simply a PB in the form of a flag price pattern on the 1 minute chart then that continuation on the 15 flag PB is simply a BO of the TR on the 1m chart. Another thing. Price is always in a channel on SOME TF. Always.
When you use them correctly, they are a time saver. When used properly, they tell you the average over time. Sounds simplistic and obvious until you go back to a time when all you had was tape prints and then time based bars. In this situation, the first question one has is: What is the average (HLOC) of these last n bars or for this time period. The MA tells you this information at a glance. However, by definition they are lagging as many say, but a lot of people still use them as forward indicators and are disappointed they 1) are not reliably predictive and 2) are too "slow" and after the fact. Hammer don't work with screws and screw drivers don't work with nails. I think people see a line on a chart and think that somehow that line means a boundary or a threshold. It would almost be better if the MA was represented by a dot or a star instead of a continuous line.
But I can glean your 10-period SMA just by looking at the past 10 bars. Ever thought about that? But that's not all. As you correctly pointed out, all MAs are lagging. Think you will ever be able to buy at the bottom or sell at the top of the trend? Likely not. Not meant as a criticism. Just saying.
As others have said, there are several different ways to employ moving averages in rules-based systems. My preference is to use short-to-medium term moving averages and build rules around their slopes. In this manner of use, their effectiveness is due to their slopes providing an indication of the most recent short-term trend. Systems can be designed that use them in either of two ways: 1. Initiate a new trade on a turn of the MA when criteria are met regarding the structure of the most recent candle and when other indicators also provide agreement. Good backtested entry rules and stop-loss settings are important to minimize losses during the most severe periods of chop. 2. Use the slope as a filter for a rules-based system rather than as part of an entry signal, e. g., no long trades can be taken when the slope is down and no short trades are allowed when the slope is up. Best results have been achieved with fast-reacting moving averages like EMAs/WMAs/DEMAs/TEMAs, etc. rather than with SMAs.
Glad you’ve got a feel for 6th grade math. An sma (thread title) primary purpose isn’t to catch tops and bottoms. It’s to compute an average and plot it. Is averaging useful ? Not for Schizo. Ok. They ain’t lagging neither. It’s the current Nth bars average.
Well, no. The reason is simple. Just looking at the damn chart will tell you what the trend is. Better yet, simply draw a trend line. All in all, you don't need to rely on a moving average to know if price is trending higher or lower. I will say this though. Two people solely using PA will never reach the same conclusion, whereas two traders looking at the same moving average will. Now do you understand why mutual funds and other heavy weights on Wall Street invented this useless indicator?
I primarily use 10 or 20 sma but I primarily am short term durations unless trading long term commodities which don't use moving averages. Most know size matters and not 100 traders doing one lots. My "acquaintances" are doing 1000 lots of ES on chart patterns, now am I to buck what they are doing cause of SMA? Most are doing countertrend, so learning patterns of SMAs at extremes helps greatly but learning charts at extremes are better.