Also baloney. Prices don't stall because they seek to revert to a mean. They stall because too few people are willing to pay the price asked. They fall when those who have profits seek to protect some of that when they see the stall, or when those who bought late find themselves underwater. In either case, they're concerned about the price paid, not about the 9 (or 10 or 13 or 17) e (or s) ma.
Finally somebody who's got a grip on this... And I thought I was all alone... Besides, people's motivations for acting on price - a MA can serve as a reversal signal if the deviation is too large and seems exhausted / overextended, but it can at the same time also serve as a confirmations signal that the trend is going to continue - particularly if you're seeing a 'fan' pattern of multiple timeframe averages... So yeah. Conclusion : Nothing. Simply following one indicator, particularly MA's, is simply not the way to go about TA, anyway. TA is about consensus of multiple indicators and then trying to find an 'opportunity window' where it seems like for a moment there is price action that shouldn't be - Like a panic selling in a stock while the SPX is going straight up - Great buying opportunity. Well. Good Luck ~Scientist
While I agree that MAs do not in and of themselves form price barriers/support, I think they are representative of mean value. Buyers and sellers have differing opinions on what is a good "buy" and what is a good "sell." Moving averages are only a rough representation of what market participants THINK is a bargain. Everyone is trying to advantageously purchase/sell. When price diverts significantly from the mean, or what people think is value (ie the ideal average price for the security), most often you have a reversion back to the mean because buyers no longer want to buy (it is too expensive) and sellers sell because it is too high (to lock in profits). When perceptions and opinions change, you have price initiative that forces the market to move to a new agreed upon value. Moving averages lag significantly when it comes to identifying what is the new value price. Pit traders and so forth do not use the more sophisticated, mathematical derived TA. Nor do institutions except perhaps on a more macro scale. When commercials and institutions come in, they institute a sequence of price discovery that forces traders to trade around that price action in an attempt to find an acceptable range for all participants. In reality, you have these long term buyers, long term sellers, and traders whose function is to form a market for BOTH. Traders don't care where the market is going so long as they can MAKE A MARKET for the commercials. Take for instance the significance of commercials going net long in the Spoos for the first time in three years. Obviously their perception of acceptable price CHANGED. Their perception of value enabled them to purchase when the S&P500 was at 800 pts. And in doing so, they have forced the value mean upward. Resistance will form when the Smart Money no longer thinks buying at the current price is a bargain. Moving averages and so forth are simply lagging indicators that attempt to identify the consensus of value. What is a good buy, and what is a good sell.
I'll have to disagree about the multiple indicators part. "TA" falls under three general categories: analysis of price and volume behaviors and relationship, price and volume patterns (from rectangles to pennants to Gann), and indicators that are derived from price and/or volume (stochastics, OBV). A great many people equate TA with the last category, but the first was practiced long before the MACD was a glimmer in Appel's eye. Price is price, either higher, lower, or the same as a minute ago (or whenever). There can be no disagreement as to price. There are no settings, no timeframes. It is what it is. Keep it simple.
Yeah okay dbphoenix. LOL! I am almost 60 years old and have been trading since 1981 fulltime. I have put my children through college at major private universities, have a 4000 sq ft home in Vail, along with my home here. Neither are mortgaged. I trade now because I enjoy it. And I did that by using the very methods you say don't work. Well, maybe you don't know how to work them, but the methods work when utilized by a skilled trader, which you are not. I bet my trading acct is larger than the sum total of all the profits you have ever made. Good luck 'phoenix. Keep trading those NQ's 20 bucks at a time!
All of this sounds good, but it's manufactured out of air. MAs cannot represent "mean value" unless everyone agrees on what that mean value is (and if they could, only an idiot would have bought at a higher price, and only a fool would have sold at a lower price). And since there are a near-infinite number of MAs that can be used, it is not possible to find that "mean value" through MAs alone. Taking this road means trying to apply the same nonsense to TA that is applied to FA, i.e., that companies have a generally-agreed-upon fair value (FA tends not to distinguish between the company and the company's stock; in fact, it often ignores the stock price altogether). Stocks don't have a generally-agreed-upon fair value either. If they did, they'd move only occasionally and sporadically, perhaps only once every quarter. Those traders or investors who have some opinion on what a stock is "worth" are unlikely to agree on that value. Therefore, it's irrelevant. Those traders or investors who have no idea what a stock is worth beyond the price at which it is being traded understand that every participant has his own ideas on what that value is and couldn't care less as to what those ideas are. Rather they note at what level the most people paid a given price and look to see what those people do when price reaches that level again. Having some notion of whether those participants (the market) are right or wrong in their behavior is not conducive to profits.
Gee, I wonder how the pioneers of technical analysis managed to scrape together the rent money before moving averages. There are also traders who claim to find great success using astrology.
Well phoenix, I'll have to disagree with you disagreeing with me! When I'm trading the ES, for example, this seems to work very well for me, enabling me to capture an average of 1.5-3.5, mostly 2-3 points a day - per contract, that is. I don't care whether you think there can't be disagreement over price, you sound like one of those analysts that talk on CNBC but never bought a stock in their life... There CERTAINLY ARE timeframes in anything you trade, and if you think they don't exist or larger timeframes don't influence / overpower smaller timeframes etc, well then mate I'm afraid UR not gonna be around as long as I will... All this affords me a great life, and you're pooping and tooting around that there are no price settings. Well GOOD LUCK buddy. But let's bury the axe here, quintessence is: Trading ain't about predicting prices anyway. It's all about money management. About rolling a die, taking a dive, cutting your losses and running your profits... Day in, day out. Feel free to read my recent post regarding this issue; http://www.elitetrader.com/vb/showthread.php?s=&threadid=18574&perpage=6&pagenumber=2 Who knows, Phoenix - It might boost your trading performance after all ~Scientist.
Now youâre simply talking around exactly what Iâve already laid out. As a short-term player, one is not concerned with actual fair value, one is concerned with MAKING A MARKET for said long-term players. Traders simply run back and forth between the buyers and sellers finding those areas where there is the most market participation. Thus fools and traders do buy at a higher price and sell at a lower price because their role in the market is not based on value or price discovery, but providing the liquidity for those who do, ie the long term players. A trader takes notes as to potential support and resistance because he is TRYING to FIND areas where price initiation can take place. The use of TA by traders is simply a never ending search, and a forever lagging one at that, for what is perceived value so he can TRADE AROUND IT. The use of support/resistance is that the trader âknowsâ that he can find buyers/sellers, but it is only useful in a ranging market where perception has not been noticeably altered. MA is simply a moving target of what COULD be the consensus value as price moves on and then add into the confusion that what is bargain price on one timeframe is too expensive on another. Its not an exact tool nor the most accurate one by far, it is simply one way to attempt to identify what the majority of market participants think is the general price. Commercials or long term players do not base their decisions on where others have traded (though they may take note), it is their perception of future value that engages them to initiate buying/selling. It is the differing opinions and perceptions that in fact creates a value mean rather than an exact value point. Everyone does not agree as to the EXACT price, but difference in opinion eventually settles around some sort of mean until a change in perception occurs. If price oscillates between 900 and 910, there is a general agreement as to the acceptable price but not an exact one. Otherwise, we would have a significant range extension into a new range, say 930 to 940 until such a time that all market participants are either exhausted or in general agreement as to the general mean value of the security. Opinions and values are constantly in fluctuation making the identification of an acceptable price a moving target. But a commercial or long term player DOES NOT CARE what support and resistance are. They are the ones who force change onto the market place by their consensus of opinions have changed.