Put an exponential moving average on any chart and see how it changes after each bar. It is a repaint indicator, I have lost a great deal of money with that sucker, that's why I only use simple moving averages. I am just sharing my experience folks, trade as you see fit.
I'm not sure what you would call "reliable". However, I have noticed that for a longer term trend, such as 200 days, often the simple moving average is used. And for faster trend detection (e.g. 18 days) an EMA is used.
Numerous backtests (see all the Perry Kaufman studies for instance) have shown that simple moving averages perform slightly better than more "exotic" moving averages like the exponential moving averages, including - ironically - Perry Kaufman so called "adaptive moving average" (KAMA). Anyway.
Hi Pragmatic-trader, I suggest you read "Trading Systems and Methods" by Perry Kaufman for example, a classic in the trading arena, you will find plenty of backtests about moving average, breakout and counter breakout systems. But be warned, it is not an easy read. Cordially.
Some traders use the 200 SMA as a mean reversion tool (i.e., prices won't deviate too far from it, before returning to it). I personally don't use moving averages.
Put a simple 200-day moving average on any Dow Jones, S&P 500, Nasdaq, Nikkei, Dax, Euro Stoxx, Cac40, etc... and see how many stock market crashes you could have avoided had you simply exited your position when the price closed below that average...
Has anyone specifically backtested this strategy? If it's in Kaufman's book can you paste a screenshot of this specific backtest (I don't have the book)
This is not a strategy or a system, but a simple stop loss mechanism. The whole idea is to avoid buying when the price is below the 200-day simple moving average, and vice versa for short selling. Of course this is just the general idea, the exact buy/sell points and money management techniques must be dictated by the trading system itself.