Day Trading & Forex Forum

jonboy123

Hi, im fairly new to trading, reading up on moving averages now.

What kind of moving averages are you people using?
A book I have says to only use EMA's , around 10EMA to 20EMA.

Should I begin with one moving average? Or have two or three diff ones on a single chart?

Another website suggests 10SMA with 30EMA with 200MA all together.

When you select 20MA in the selection box, and youre looking at a daily chart, that means 20 days, right? But when you are looking at a weekly chart, does that same 20MA setting mean 20 weeks?



Does anyone use moving average lines as support and resistance zones?
Do people make buy and sell decisions around the moving average line, depending on the slope?

Any thoughts/advice/help most welcome.
Thankyou.

TheBramble

It really doesn't matter. Choose at random. Fib values are fashionable. The ones you mention are well documented and many use them so you’ll be in good company.

Exactly. The same as on a 9 minute chart or a 3 day chart. All equally useful.

MAs are a derivative of price – they happen AFETR the price happens. They (the price data) are completely unaware of the MA presence. Only traders know they are there…So you use them that way if you want. They’ll seem to work as often as not.
I’m sure they do all the time. Is that what you’re thinking of doing?

jonboy123

Im gonna look more into fibs later, im not convinced on that fib stuff yet, just sounds silly.

So 20MA on an hourly chart would be 20 hours MA?

Im not thinking of doing anything, im just learning the important stuff at the moment.
Thanks.

Chorlton

Moving Averages are nothing more than an "average" of price over x periods. The basic idea behind having 3 MA's (of various periods) on a chart is that they will help convey short-term, medium-term and long-term trend direction. The values you decide to use should be based on what you determine the 3 terms to be. As Bramble has already mentioned, the "exact" values you use are not really that important. Have a play on some charts and you'll see for yourself.

MA's (like any form of TA) can become self-fullfilling. In otherwords, the more people monitor and reactive to price in relation to a particular MA value (say 200MA) for more likely the chance that price will actually react at that point. From this point of view alone understanding what values the majority use can be "useful". HOWEVER, IMO do not just assume that everyone uses a particular MA value because it is written in a book. Actually backtest it to confirm its effectiveness. As an example there is a lot written about the good old 200MA but from my own testing the likelihood of predicting price movements around this level was not much better that 50%

Regarding using MA's as Support & Resistance levels, this is definately something which people do. The key difference between using MA's and actually price is that with MA's these S&R levels become "dynamic" as opposed to "static". Whether you can build a profitable strategy around this is down to you though.....

On the point about how many MA's should you have on your chart, ask yourself what information you are trying to convey to yourself. If its just to highlight trend direction this can be simply achieved by looking at the price chart WITHOUT any indicator. If price is moving down its in a downtrend ;-) Easy eh ;-)

My advice is don't go down the road of most newbies and thinking that more indicators (in this case MA's) will help you trade. Work out what you need to know from the chart and build what you need to present this information around that. Keeping your charts clear and concise will help in the long-run ;-)

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TheBramble

It's ALL quite silly, but it's a game we all agree to carry on playing.

Those who do well are those that realise this and take a slightly different view than those who haven't yet, and possibly never will.

shadowninja

What they said.

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julian

Jonboy we spend hours looking at MAs when we start,its all part of looking for the holy grail,we then move on to macd,ris,stochs etc,then fibs,then gann et,etc. If I had my time starting again Id spend my first weeks really trying to understand Risk/reward ratio and then try applying it to any MA.

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jonboy123

julian.... yes, interesting point.
Risk/reward = money management?
Ive got a few books on the go, and they all speak about money management.
Risk and reward ratio....can you elaborate a bit please? or PM me?