200ema and 50ema

[kagein]

i see a lot of people use the 200ema and the 50ema, is there anything particularly significant about these moving averages apart from determining long term trends?

 

[JTrader]

I doubt it. But perhaps its become an unofficial industry standard :idea:, for some obscure reason.
I don't look at them.

 

[TheBramble]

i see a lot of people use the 200ema and the 50ema, is there anything particularly significant about these moving averages apart from determining long term trends?

The fact you see a lot of people using them is the significance.

 

[Rhody Trader]

The fact you see a lot of people using them is the significance.

Exactly. That's one of the things about any popular technical analysis method. When enough folks use them they essentially become self-fulfilling.

I'm not even entirely sure what moving averages are supposed to provide by way of useful directional information. They are simply a statisical measure of historical prices.

 

[theroguetrader]

a " reliable " MA represents usually a dynamic level of support and resistance - so they are pretty essential -
use em in conjunction with trendlines and hey presto -

 

[Rhody Trader]

... - so they are pretty essential -
...

They most certainly are not. If you find them useful, that's fine, but there are a whole lot of successful traders who don't give them a moments thought.

 

[TheBramble]

a " reliable " MA represents usually a dynamic level of support and resistance - so they are pretty essential -

Can you define 'reliable'? Any MA represents a smoothed derivation of the price. That's all. The period we choose to smooth and the timeframe chosen to view are all completely arbitary.

They definitely DO NOT represent support and resistance. Price meanders around its MA - it (price) doesn't 'know' it (the MA) is 'there'...

 

[theroguetrader]

all im saying, is the MA average is a POWERFUL tool because of its versatility and shouldnt be overlooked..!!
I think its useful in all kinds of situations, whether your " day trading " or a LT position holder. A long-term portfolio manager for instance might use a 200 day for instance.
That wont produce many trades, but the trades that are made will be in the direction of the long term TREND..... !!
Sure, the MA always reacts to past market data - a lag exists between it and the current price, but the " LAG " requires the trader to cut his losses and let his profits run -

" exactly " our goal...? no..?

 

[shadowninja]

I admit to being an MA whore. But I don't use it on its own. I use it with S/R levels, Fibs, Trendlines to reinforce my decision.

 

[Rhody Trader]

all im saying, is the MA average is a POWERFUL tool because of its versatility and shouldnt be overlooked..!!

Once upon a time I did all kinds of testing with moving average systems. I was personally dissatisfied with the results (which isn't to say someone else won't think otherwise), so now I don't bother with them.

Sure, the MA always reacts to past market data - a lag exists between it and the current price, but the " LAG " requires the trader to cut his losses and let his profits run -

" exactly " our goal...? no..?

If you assume an MA is used in standard cross-over fashion, then you could say it requires the trader to cut his/her losses. At the same time, though, it becomes very hard to pre-define your risk for a given trade.

Regardless, I'm not sure how the lag is what requires the trader to do anything. The lag isn't a force. It's just a reality of the use of historical data.

 

[theroguetrader]

trouble is, you can never be sure whether a crossover will turn out to be a whipsaw until after the fact -
If the MA has been touched or " approached " on several occasions without penetration, when the actual crossover takes place its more " likely " to be a valid signal than if the ma has already experienced a multitude of whipsaws -
Generally, penetrations of averages with a " SHALLOW " angle of ascent or descent are more reliable - than those with sharp angles..!!
thats because a MA that is fairly flat reflects a trend that is far more susceptible to a reversal - If an average is moving up or down at a fairly fast clip,that usually indicates that theres strong underlying MOMENTUM - and a penetration of that average is LESS likely to disturb that momentum -

 

[theroguetrader]

Stanley Druckenmiller uses moving averages (amongst other things) - and he pulled off probably THE best trade of the modern age -

so who am i to argue..?

 

[Rhody Trader]

Stanley Druckenmiller uses moving averages (amongst other things) - and he pulled off probably THE best trade of the modern age -

so who am i to argue..?

If you're referring to the famous Sterling getting knocked out of the ERM trade he did with Soros, then I believe fundamentals played a massive part of that position.

 

[dbphoenix]

all im saying, is the MA average is a POWERFUL tool because of its versatility and shouldnt be overlooked..!!
I think its useful in all kinds of situations, whether your " day trading " or a LT position holder. A long-term portfolio manager for instance might use a 200 day for instance.
That wont produce many trades, but the trades that are made will be in the direction of the long term TREND..... !!
Sure, the MA always reacts to past market data - a lag exists between it and the current price, but the " LAG " requires the trader to cut his losses and let his profits run -

" exactly " our goal...? no..?

I don't doubt the sincerity of your belief, but you're just throwing virgins into the volcano.* Price reacts to support and resistance that are the result of important shifts in demand and supply. These are manifested by those price levels at which those shifts occur. Those price points exist independent of the trader and do not change simply because the trader wants to manipulate them.

MAs, on the other hand, are the result of the trader's choices: simple, exponential, weighted, length, for a start. In order for them to provide S/R, every trader everywhere would have to choose the same MA, calculate it the same way, plot it the same way. This is unlikely.

Therefore, next time you think that an MA appears to be providing support or resistance, look to the left. See what price was doing at some point or time period in the past, even if it was only a few minutes ago (depending on what interval charts you use to trade). You will likely find S/R provided by price, not by an ever-moving, ever-changing wriggle of a line.

Db

*This work/not work business has to do with a fundamental misunderstanding (a general misunderstanding, not necessarily yours) of how "indicators" are calculated and what they're supposed to do. We think we see the indicators indicating something, or not, and believe we have made an important discovery. We then devote our efforts to improving the hit rate and the probability of whatever it is we think the indicator is indicating when our efforts ought to be focused on detemining whether or not the indicator is actually indicating what we think it's indicating. In most (all?) cases, it isn't.

Consider the virgin being tossed into the volcano: sometimes it results in a great crop, sometimes it doesn't. Maybe tossing her in earlier or later will change the probability of a healthy crop. Maybe two virgins are better than one. Maybe six. Maybe tall virgins are more effective than short ones. And surely age is important. But does the robustness of the crop really have anything to do with tossing the virgin into the volcano in the first place?

 

[dbphoenix]

I'm not even entirely sure what moving averages are supposed to provide by way of useful directional information. They are simply a statisical measure of historical prices.

I suspect that managers way back when used the 200d to compare current price with what it was a year ago and the 50d to compare price with a quarter ago. Sounds good anyway.

Then the retail trader put it to a use to which it was never intended to be put, like most other indicators. And here we are . . .

 

[theroguetrader]

sure fundamentals played a massive part -

you dont decide to pop out a fast 10b short over cornflakes thats for sure..

 

[theroguetrader]

I didnt say moving averages "show " support and resistance - i said they show dynamic areas of support and resistance -

and yes - they cant deal with trading range environments - BUT when a couple of moving average whipsaw signals have been given,its also possible to construct a few demarcation lines to mark the range. Those demarcation lines can then be used instead of the MA to note the direction of the next trend -
Thats because the MA is no longer functioning in its support/resistance role -
ie - its crossovers are MEANINGLESS...!!

 

[theroguetrader]

MOST indicators are RUBBISH anyway , and just dont work in PRACTICE..!!

If people noted the way the MA is POINTING more - ie flat, up or down - it would help them make better trades..!!
All the penetration of support and resistance indicates is a change in investor expectation and a shift in supply/demand lines -

 

[dbphoenix]

Thats because the MA is no longer functioning in its support/resistance role -

Assuming that it has one, which takes us back to the beginning.

MAs are, however, nice for showing trend.

 

[theroguetrader]

yip - and as we know - (or i hope people realise)


We should ALL be trading with the trend ........ !!