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MR LYNN G wrote:
>
> Below are a few comments about moving averages by traders. My question to the
> group is how do you reduce whipsaws when using MA's?
Lynn,
It depends on how you use the MA's. Many people use a dual or triple
MA and trade cross-overs. While this may prove profitable in the long
run, it often subjects the trader to massive drawdowns, while waiting
to catch a large trend. This whip-saw effect is even more pronounced
in the current markets, because volatility is greater, and American
markets, with a few exceptions, have not trended well over the last
four or five years.
I trade MA's using a "Bounce" method.
the systems are very simple:
Look for the market price to cross over the MA you are using. (You
only need one. I prefer an Exponential MA). Look for price to revert
back to the MA and buy or sell the first bounce against the MA's
resistence. This method can be used in all time frames, and filters
such as ADX can be added to confirm trend state.
L. Connors and LB Raschkes' book "Street Smarts" shows one such system.
They call it "The Holy Grail" :) .
In order to determine the length of the MA used, take a look at how
long you usually like to be in the market, and times it by two. If
you usually like to be in ten days, use a 20 MA etc.
Exit strategies are also easily defined. If not stopped out, exit the
position (MA / 2 ) days after entry. If you are using a 20 MA, exit
after 10 days. Another method, is to use a smaller MA to exit.
For example, if using a 20 MA, and you are long, then exit if price
closes below a 5 day
MA etc.
Sometimes, the market won't come back to the MA, and you will miss out
but in general this method will greatly reduce your drawdowns, while
still affording a possibiity of catching the "JAWS" of the trading
world. :)
Walt Downs
CIS Trading
http://cistrader.com
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