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One uses moving averages to indicate whether the item being traded is rising or
falling in price. If that is the assumption, then logic and several very
interesting books put forth the thesis that the two moving averages should be the
span and 1/2 span of the cycle being traded. For a true reading the moving
averages should be offset by 1/2 their cycle length in order to reflect the moving
average of the bar above it accurately. If you check the cycle book by Hurst you
will find that most of the popular moving averages fall on or about the cycles
that were established in his book. Part of the accuracy in some of the moving
averages is self fulfilling. If everyone believes that the 200 day moving average
or the 50 week moving average is the holy grail, then when they are penetrated the
buy or sell programs will follow as the traders act like sheep. In commodities
the 18 and 9 bar averages seem to be the popular ones. In stochastic everyone
seems to use 14 as the norm. Because it is popular does not make it right. When
using any system or indicator make sure you understand what the developer had in
mind when he/she developed the system and why they selected the specific numbers
used in the indicator. To follow blindly without understanding will lead to a very
lean bank account and maybe welfare. Knowledge is power and with understanding
success. Good luck, Ira
Bando57@xxxxxxx wrote:
> Id like to start a thread on moving averages...
>
> Fact: they are perhaps the most simplistic indicator...as to their
> effectiveness..thats up to the individual.
>
> Fact: no two traders seem to agree on what is a good length of time for a
> moving average..Of course different markets respond to different inputs. Also
> intra day traders will certainly see things differently from end of day
> traders to positional traders if there is such a difference between those
> two...
>
> For example I attended a meeting between traders the other day...one trader
> swore up and down that a 55 day MA is the most important indicator. Not 40
> days...Not 50 days..not 90 days..not 200 days...55 days..
>
> Another trader in reference to crossover MA...used a 13 day..89 day..and 200
> day for stocks...and said this was after six months of testing that these
> particular numbers provided the most accuracy...
>
> So Id like to hear from other traders on their experiences with MA...
>
> Ive heard it said many times that for crossovers you need an 8-1 ratio..i ask
> why?
>
> Presently I have been using a 4 day with a 32 day backed up with a
> confirmation MA of 90 days...Im not saying this is the holy grail. Im just
> saying I picked these numbers at random and liked what I saw. But im sure I
> could go back to Omega Supercharts 4 day.9day..with an 18 day long average and
> perhaps be just as happy..
>
> Well hope there are some traders out there who would like to share some
> thoughts on Moving Averages.
>
> Rick
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