Moving Averages

This is a discussion on Moving Averages within the Technical Analysis forums, part of the Methods category; Originally Posted by kinsorted I agree. I like to keep developing my strategy, that's all. I think this thread should ...

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Old Nov 7, 2017, 3:54pm   #31
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Joined Mar 2002
Quote:
Originally Posted by kinsorted View Post
I agree. I like to keep developing my strategy, that's all.
I think this thread should be closed before it gets out of hand
Hi kinsorted,
Welcome to T2W.

Depending on what you mean by a thread getting out of hand, some would say that's a T2W specialty, even a hallmark of sorts. Your question is a very good one and as relevant today as it's ever been, so there's no need for the thread to be closed.

dbp can always be relied upon to post solid and useful advice when it comes to trading and, in broad terms, I agree with what he's said here. By contrast, I rarely agree with anything EnlightenedJoe ever says, but that's because 90+ of what he posts makes no sense to me at all! But, I accept that that may say more about me than it does about him. Be that as it may, I do agree with his comment that most traders use indicators of all kinds (MAs included) the wrong way. Typically, this involves using them to generate buy and sell signals. Using MA's to do this will get you into a trade late in a trending market and out late after price has hit 'the bend at the end'. That's not great, but it's waaaay better than using them in a range bound market which will see you losing money hand over fist.

So, the above begs the obvious question: how can - or should - MAs (and indicators in general) be used? To answer this, check out the Essentials Of Technical Analysis Sticky and scroll down to the heading: 'Indicators and the Mechanics of TA' in post #2.

My personal view is that MAs can be useful as a means of bench marking where price is now - relative to it's average over N periods. Traders who employ a reverting to the mean strategy often use them in this way. I did this quite early on when I first started trading and, after three months my account was up 26% and I'd already hit my profit target for month 4. Then came the fatal newbie error. I was so convinced that I had a totally robust strategy, that when price deviated beyond the statistical norm (i.e. further away from the moving average than it 'should'* have done), I responded in kind and deviated from my risk management strategy. Mistake, big mistake. Huge. The net result was that I lost 70% of my account in less that 24 hours. Whilst I clearly made some monumental mistakes, I don't think my use of the MA was one of them.

Other T2W members use MAs to good effect - check out threads/posts by tomorton and darktone for examples.
HTH.
Tim.

* A little tip: if you ever find yourself thinking that price 'should' do A or 'should' do B - your thinking is wrong and you're a short step away from losing (a lot of) money. There is no should when it comes to price movement - it does what it does and you need to be prepared for every eventuality.
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