Moving Averages

It seems to me that, over the last few days, or weeks, those who like to use MA's on their chart are getting a bad press around here. So I thought that I would post mine.

I'm not going to say much except that some posters do not believe that it is logical to use them.

"Logical" does not come into my trading except that I try to enter into the direction of the trend and that entails the rule of probabilities. A longish average will tell me all I need to know when I enter a trade.

Entering when a trending average is pierced is not a logical action, so we are told. Everything else is?

This is the chart that I have been watching over the last two days. I think that it speaks for itself. They are not perfect and must be used with other tools but the only other thing I use is the candle bar, itself.

Re: Moving avesrages

Good post. MAs are a useful tool - of my 12 Sharescope set-ups only the P&F option does not display at least one MA.

Re: Moving avesrages

tomorton said:

Good post. MAs are a useful tool - of my 12 Sharescope set-ups only the P&F option does not display at least one MA.

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Hi Tom,
I might be getting the wrong end of the stick here, so apologies in advance if that's the case, but the inference is that ShareScope doesn't offer the option to display MAs? This surprises me as SS is very good (from the days when I used them) and I would have expected them to offer this facility. They're actually pretty useful on P&F charts as they're lovely and smooth as a result of the P&F chart filtering out all (okay, most) of the chop you often get in time based charts. I find 'em invaluable!
Tim.

Re: Moving avesrages

timsk said:

Hi Tom,
I might be getting the wrong end of the stick here, so apologies in advance if that's the case, but the inference is that ShareScope doesn't offer the option to display MAs? This surprises me as SS is very good (from the days when I used them) and I would have expected them to offer this facility. They're actually pretty useful on P&F charts as they're lovely and smooth as a result of the P&F chart filtering out all (okay, most) of the chop you often get in time based charts. I find 'em invaluable!
Tim.

Click to expand...

You could have fooled me!

Re: Moving avesrages

So is your view there may be a drift up into options expiry and then we may see a decent sell off? it certainly looks toppy to me but I will wait for it to pan out a little more..

Re: Moving avesrages

Splitlink said:

You could have fooled me!

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'Tis easily done Split'!!!

Re: Moving avesrages

timsk said:

Hi Tom,
I might be getting the wrong end of the stick here, so apologies in advance if that's the case, but the inference is that ShareScope doesn't offer the option to display MAs? This surprises me as SS is very good (from the days when I used them) and I would have expected them to offer this facility. They're actually pretty useful on P&F charts as they're lovely and smooth as a result of the P&F chart filtering out all (okay, most) of the chop you often get in time based charts. I find 'em invaluable!
Tim.

Click to expand...

Hi Tim -
SS does offer MAs on charts but not on P&F. I thought this was for obvious reason that P&Fs don't have a time axis so it's hard to picture how a MA could be displayed on a P&F chart. But as you mention it (and I've never seen one) can you post one up or link to one?
Tom

Splitlink said:

It seems to me that, over the last few days, or weeks, those who like to use MA's on their chart are getting a bad press around here. So I thought that I would post mine.

I'm not going to say much except that some posters do not believe that it is logical to use them.

"Logical" does not come into my trading except that I try to enter into the direction of the trend and that entails the rule of probabilities. A longish average will tell me all I need to know when I enter a trade.

Entering when a trending average is pierced is not a logical action, so we are told. Everything else is?

This is the chart that I have been watching over the last two days. I think that it speaks for itself. They are not perfect and must be used with other tools but the only other thing I use is the candle bar, itself.

Click to expand...

The first impression that a person gets with an MA is flexibility, wether they are used in singular form or in multiples.

I actually think that they have a major disadvantage when compared to SR, a trader can't plan ahead with MAs.

A trader using SR can rest orders around certain prices, they can wait for the market to come to them. The same strategy using MAs isn't really practical, in fact i can't see it working at all.

Just a thought.

There are certain MA's that get a lot of press. For instance the daily 200 MA and the daily 50 MA.

This is fine & there is reason to watch those numbers as they are very much in the public/trading domain.

On the other hand, I know one trader that is CONVINCED that the MA's on the 3 charts they watch - 1 min, 3 min and 120 tick are all providing support/resistance. This is nonsense in my opinion.

It's almost comparable to art, if you think it looks right...buy it.

kimo'sabby said:

The first impression that a person gets with an MA is flexibility, wether they are used in singular form or in multiples.

I actually think that they have a major disadvantage when compared to SR, a trader can't plan ahead with MAs.

A trader using SR can rest orders around certain prices, they can wait for the market to come to them. The same strategy using MAs isn't really practical, in fact i can't see it working at all.

Just a thought.

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Yes, we've probably got different styles.

I would not use a point to enter the market above me to short. when the averages are falling. I, usually, open a trade at market or, if I'm not around I would put in a sell order, but then I would be above my falling average.

Neither would I enter the market long if the averages were falling, unless I thought that the price was oversold.When that happens I am normally in for a quick 5-10 points.

If you use SR lines, your trading procedure will be something else. That's the way we are.
But entering a trade is nothing more than where you think you will make a profit. There is no mumbo-jumbo about it and it is, whether the gurus think otherwise, or not, just a calculated risk on our parts. The smart part is getting out when it is not going right. So many people take losses far away from where they should have, just because they wanted to give it that few extra points. I sympathise with those people because I have gone through that, myself.

This last paragraph is the nub of the issue, not what one uses as signals

kimo'sabby said:

The first impression that a person gets with an MA is flexibility, wether they are used in singular form or in multiples.

I actually think that they have a major disadvantage when compared to SR, a trader can't plan ahead with MAs.

A trader using SR can rest orders around certain prices, they can wait for the market to come to them. The same strategy using MAs isn't really practical, in fact i can't see it working at all.

Just a thought.

Click to expand...

Oh I can say that planning ahead using MAs has been a very effective strategy and has worked very well for me.....check out my journal: http://www.trade2win.com/boards/trading-journals/95794-casual-traders-journal.html - I use MAs with nearly every trade I make.

The more I use them, the more I figure out how to use them better. For example, I might use a MA for entry when price touches it BUT like everything else in trading, other confirmation conditions must also exist - IOW, if one just blindly trades off MAs alone without regard to numerous other factors, then they can be expected to work no better than blindly trading off S/R.

Count me in the camp that says MAs work.

Moving average or we can say running average can be helpful in showing the current direction with a lag and it is also useful in showing some comparison with the past prices and identifies the direction of the trend.

Re: Moving avesrages

tomorton said:

Hi Tim -
SS does offer MAs on charts but not on P&F. I thought this was for obvious reason that P&Fs don't have a time axis so it's hard to picture how a MA could be displayed on a P&F chart. But as you mention it (and I've never seen one) can you post one up or link to one?
Tom

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Hi Tom,
Well worth contacting SS about this, IMO. When I was with them, they were always very helpful and attentive. Given that they (rightly) pride themselves on very good P&F charts, being able to add MAs would be an obvious upgrade.



The chart above is of the ES (white) and $Tick (black). Sorry it's not very good but, unfortunately, I have to download data to my PC and I only have 5 days worth - so it's hobson's choice I'm afraid. Still, it provides some idea. Actually, I only use the $Tick chart with the MA shown. As you know - the $Tick is a market breadth indicator which, roughly speaking, oscillates between +1000 and -1000. The MA provides a very good indication of when a shift from positive to neutral is taking place (or a shift from negative to neutral). As you can see from the divergence, $Tick prints slightly HHs, while the MA is making LHs. If the Dow / YM (or ES) are making HHs while the $Tick MA shows divergence, this is a very effective signal that an existing trend (if there is one) is running out of steam. An impending consolidation period is likely to be just around the corner and/or a possible trend change.

In terms of how MAs on P&F charts work - this is my understanding . . .
MAs on time based charts are, of course, based on price averaged over X number of minutes, hours or days etc. With P&F charts, MAs are based on the number of columns so that they are averaging the price per column reversal as opposed to price per unit of time. So, an MA set to 10 will average the last 10 columns and one set to 20 will average the last 20 columns etc. The sensitivity of the chart is dependent upon the box size and reversal amount. HTH.
Tim.

PS. Found this link which shows a P&F chart with a MA, next to a time based chart of the same instrument.
http://www.trade10.com/point_and_figure.htm
For the record, just in case you (or anyone else) was wondering, this isn't me going off on some weird flight of fancy! Jeremy du Plessis devotes a large chunk of chapter 9 to the subject in his excellent book The Definitive Guide to Point and Figure

Some stocks historically respond much better to moving average-based signals than others. It can be good to use moving average strategies more on those stocks than others. For example, I've recently been playing around with parameter "MACD Reliability" in the stock screening program StockVision.