Using MA's to read the tape.

Discussion in 'Technical Analysis' started by RangeTrader, Jun 9, 2012.

  1. I thought I would post this for the newbies around here...

    I interpret moving averages the same way I interpret candles or range breakouts/breakdowns. Price above a moving average shows the bulls are in control, and price below shows the bears are in control.

    The odds of buying low and selling high with short term trading are better above a moving average, and the odds of selling high and buying low are better below a moving average. I did a bunch of back-testing of this half a year ago.

    Personally, I don't pay too much attention the slope of moving averages.


    Whats more important is seeing how many buyers are coming in above the moving average, and how many sellers are coming in below it. Be careful when price is near a moving average transition, as there is always potential for a sudden large reversal.

    I use a 116 MA on all charts from 5m +.

    The markets relation to a moving average and it's slope helps analyze the odds of a range breakout/breakdown having some real momentum to it.


    Anyway, I'm out for the weekend... Would like to hear if others in here have some interesting thoughts about moving averages.
     
  2. oraclewizard77

    oraclewizard77 Moderator

    You can have price also break above or below a shorter term moving average. Yes, a longer term MA or EMA will give a good trend bias when combined with another signal to take the trade. Just by itself, you can't trade.
     
  3. Yea, of course...

    The most important thing with moving averages for me is using them to predict volatility...

    The transition zones get very volatile... Works a lot better than VIX as it doesn't lag... LoL!

    Here is the 116 on the daily...
     
  4. Lucrum

    Lucrum

    RangeTrader

    Registered: Mar 2012




    How long does one need to be "around here" before they're no longer a newbie?
     
  5. Depends upon how long you have been trading. I started in 2008. Anyone who is a newbie has under a year under their belt.
     
  6. For the Newbies....

    Moving Averages are a lagging indicator...

    They display what price DID, not what price will do on "the hard right edge" of the chart

    They have their uses when used in combination with other tools for confirmation or trade mgmt, but are far from being a primary indicator...

    You will be well advised not to formulate a strategy based solely on their use and mis-use...

    Numerous crosses of an MA depicts consolidation / no clear direction [neither buy nor sell pressure] -- especially in fast fractal's

    Additionally, one size fits all approach is flawed, different fractals require different settings... one must do the research, not just apply an arbitrary setting

    Second tip for newbies off topic.... avoid fast fractal charts, the faster the chart the noisier... until one is proficient, 5-minute charts will only make your broker profitable.

    And now for the most important tip of all... avoid misinformation... Take nothing on face value, without back tested results assume everything you read is noise... and you will find your share on ET
     
  7. I have backtested moving averages before. They work just fine.

    If you run a backtest... Have it randomly buy and randomly sell after a set random duration of time with a random interval range. When price is over a specific moving average random buying then selling statistically makes money.

    Continue to run absolutely random buy/sell backtests multiple times on different moving averages and see what one is the best. I don't feel like re-coding the backtests again to show you. I did the research a year ago. It makes common sense anyway... When price is above a moving average it's going up... Duh! Of course random buying and then selling will show a profitable backtest. LoL... You would have have to have failed algebra if you disagree with that.

    If a monkey randomly buying and selling when price is over a moving average works, imagine how well someone actually buying dips and selling pops can do. :D


    There was a lot of research done back in the early 90's to what was the most effective simple moving average and then the stupid thing got coded into a lot of the black boxes and alogos... So the market always reacts to it...
     
  8. You solicited thoughts on Moving Averages - I responded

    You tend to portray yourself as highly knowledgeable offering guidance to Newbies, but I have seen no evidence in your posts which qualifies you as such.

    It is of no consequence to me, but I sense a red flag as have others and provided a disclaimer to those new to trading who are serious about not failing -- Buyer beware so to speak...

    For the record, my definition of Newbie is not time based, but experienced gleaned...

    It takes thousands of hours screen time trading live, conquering your inner demons, mastering discipline, developing sound risk and money mgmt techniques, establishing consistent profitability before one can truly pass the "newbie" stage. Not just a few years trolling message boards, scalping a few points here and there...

    In regard to your last statement "the Market always reacts to it" there are no absolutes in trading. The concept of always is non-existent, to think the contrary is quite naive...
     
  9. Just like weekly and monthly pivots always have a price reaction to their tests. Certain moving averages are very physiologically important to traders.

    Just like these recent range breakouts were important to get people buying before Ben Bernanke's speech. As soon as the range breakouts occurred and the alogo's and automated buy programs were coming on board everyone started feeling more and more optimistic about QE3 and everyone went with the flow.


    Btw... I feel sorry for so many people in here... Your still fighting with mental blocks.
     
  10. Lucrum

    Lucrum


    RangeTrader

    Registered: Mar 2012



    Then by that definition you are a newbie "around here".
     
    #10     Jun 10, 2012