The moving average is one of the most reliable indicators there is , but traders common complaint of it is that it lags. While this is true to some degree , there is more to it than just lag. It has momentum it has velocity , it accelerates , consolidates , it shows you when to load , or hold back , go all in. It even gives early warning signals. Please note that CAPS are for emphasis , i do not have the time or the inclination to change fonts or colors of fonts , so caps it shall be. To any trader it is essential to be able to measure price and its movement. Considering we have the morning auction , then the morning mad rush , the afternoon rush to close positions because traders don't want to hold overnite , and another auction , before closing price is established, Given that its best to measure price from one close to the next. Please note that CAPS are for emphasis , i do not have the time or the inclination to change fonts or colors of fonts , so caps it shall be. Below is an end of day chart of the S&P500. The first window is the closing price. Pretty simple. The second window is a smoothed 233day Exponential Moving Average..... overlaid on the 233day EMA is what i call the 'WAVES' of the smoothed 233day Exponential Moving Average. It tells you everything i said above. Make note of it's SHAPE and it's VALUE (1.92922) The blueish line( the greenish line is overlaid for appearance) The primary indicator in the 3rd window is a SMOOTHED 3 DAY EXPONENTIAL MOVING AVERAGE , with a 233day EMA. Overlaid are the WAVES OF THE 233DAY EMA. Note it's SHAPE and it's VALUE (1.92922) It matches the WAVES in the above window only this time it's over a 3day ema. Now that we are confident of our swing and position trading status we should focus on short term situation. That magic happens on the fourth window. Remember me asking you to note the shape and values of the WAVES...? In the fourth window the PRIMARY INDICATOR is a 3DAY EXP OSC.( the greenish line) NO MATTER WHAT THE INSTRUMENT OR IT'S PRICE IS , IT WILL CRIS CROSS THE NEUTRAL ZERO LINE. In other words we're putting PRICE on a STRAIGHT AND HORIZONTAL LINE , SEPARATING SHORT TERM SUPPORT FROM RESISTANCE. Next we insert in a 233day EMA.Note it's shape and value. It runs straight through and almost parallel to the ZERO LINE.(value 1.92922) Now that we know whether SHORT TERM PRICE is in a SUPPORT or RESISTANCE AREA , WE NEED TO FIND THE TREND. That happens when we take the 233DAY EMA(THE ONE THAT'S RUNNING ALMOST PARALLEL TO THE NEUTRAL ZERO LINE) AND AMPLIFY IT. That would be the Orange Line. The result produces its Atomic Values being (1.92921637) matching the WAVES AND VALUES in the above two windows AND ALSO SHOWING THE DIRECTION PRICE IS HEADED TOWARDS. Next i need to mathematically verify that my technical analysis is correct , (nothing worse than to have an indicator pointing in one direction while price moves the other way.) At the time of writing , the S&P500 was trading at 5930.8 Although not shown here in this chart the numbers are as follows. 1.92921637 / .000325288 = 5930.79 (right on he money) While this is already in 'grail territory' it gets more advanced , but we won't go there.
. Thank you for describing your approach to trading with moving averages. Are the smoothed 3day and 233day EMAs you mentioned calculated simply as a moving average of the original moving average, or are they more analogous to something like a DEMA (double exponential moving average) line? DEMA on ThinkOrSwim: "The Double Exponential Moving Average study is designed for calculating a moving average eliminating lags associated with simple moving averages. The Double Exponential Moving average is calculated as the difference between the doubled value of the exponential moving average and the moving average of the moving average for the same period."
Sma 10 going through middle of bars represents Chop. Bollinger bands, when entire price bar above upper band represents strong trend, but expect retracement at some point.
Just an observation: This versus the OP illustrates two different overall approaches. Handle123's, is about using the MAs an element to derive an "indicator". The OP is a derivative of the same data massaged to "reveal" some information. Two different paths. The first method, as a concept, can create "novel" information, and re applied to a lot of indicators. It is also when the beginner has a light bulb ON movement. The second is more of a rabbit hole that *can* be prone to analysis fitting the data into the desired information. This is also how so many indicators are created and why there are so many of them based on derived data. And why so many people go back to the original source, price action.
First of all, what you claim is easier said than done, especially in hindsight. Do you really think those velocity and momentum you speak about will be of any value when the price already reversed 30 minutes ago (or 30 days ago)? Are they even pertinent to where the price is trading NOW? If you want to make anyone into a believer, post your trade(s) in real time. Otherwise, it's only a matter of one's personal opinion. BTW don't take this personally. I just don't like TA.
And all these things are lagging too. E.g. velocity indicated directly by price and volume change, show up much faster than any MA, or derivative of an MA, by definition. Making any derivative "indicator" from MAs, does not remove the lag.
I tried recreating this, but to no avail, how does one even get 1.92922? and what does a smoothed 3 or 233 day EMA is? I'd assume it was just smoothing the EMA twice by the same period (3 day EMA of 3 day EMA).
Nothing but pure price action (ie. candlesticks) on the chart. No indicators like moving averages or oscillators like Stochastics. Not even volume. BTW volume is for pussies.