Moving Average

[miskec]

Moving average is one of the most popular and easy to use tools available for doing technical analysis. It means the average price of a currency over a specified time period (the most common being 20, 30, 50, 100 and 200 days), used in order to spot pricing trends by flattening out large fluctuations. Moving average data is used to create charts that show whether a currency’s price is trending up or down. They can be used to track daily, weekly, or monthly patterns. Each new day's (or week's or month's) numbers are added to the average and the oldest numbers are dropped, thus, the average "moves" over time. In general, the shorter the time frame used, the more volatile the prices will appear, so, for example, 20 day moving average lines tend to move up and down more than 200 day moving average lines. There are four different types of moving averages: Simple (also referred to as Arithmetic), Exponential, Smoothed and Linear Weighted. Moving averages may be calculated for any sequential data set, including opening and closing prices, highest and lowest prices, trading volume or any other indicators. It is often the case when double moving averages are used.

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[options]

What about Triangular, end point, time series, and Wilders smoothing?

 

[Windowsill]

What about Triangular, end point, time series, and Wilders smoothing?

So whats your favourite :cheesy:

 

[nine]

Wilders smoothing is just a twist on the way that the number entered generates an exponential ma ... I feel he was cheating to get his name on one.


You forgot the tight filters: T3, Hull, and Jurik.
And what about the lsma that isn't really a moving average but a moving projection.

Hmmm. It is true that the simple moving average is actually a moving average but being realistic, many of the others are not averages at all. They are misnamed. More people are lying to traders!

What they all are in fact is low pass filters. And this awareness is what allowed people like Hull and Jurik and Tilson to say, if they are low pass filters and their primary purpose is thus to smooth at the high frequency components of price with as little lag as possible then why don't we ignore this average stuff and use our electrical engineering knowledge to build the smartest low pass filter we can.

Currently first prize goes to Jurik ... but the T3 and Hull are free so they are more popular.



Other people, like myself, say "the averaging and the filtering are not the good thing." The good thing is that mas function as lazy trendlines ... they are moving supply lines, moving support and resistance. For this function we don't need low lag, what we want is the mas where price bounces at various stages of trend development. And thus we want the mas that the most people are watching.

This makes the most popular mas:
8 emas and 20/21 emas on short timeframes
20 ems and smas on long timeframes.
50 and 200 smas on long timeframes.

And for people like us (too lazy to draw a trendline or a channel) then these most popular mas are clearly the best

 

[rathcoole_exile]

Moving average data is used to create charts that show whether a currency’s price is trending up or down

alternatively look at the left hand side of the screen.
if price was lower or higher there than it is now at the right hand side, then you have a trend.
if neither the left side or right side is much higher or lower than the other, then you don't have a trend.

 

[rathcoole_exile]

they are moving supply lines, moving support and resistance. ... what we want is the mas where price bounces at various stages of trend development. And thus we want the mas that the most people are watching.

i think there is an important distinction between the OP's use of MAs to identify Trends, and your use of them as self-fulling-prophecy S&R lines.

 

[nine]

i think there is an important distinction between the OP's use of MAs to identify Trends, and your use of them as self-fulling-prophecy S&R lines.

Yes. Although the oft used description of mas as "self-fulling-prophecy S&R lines" is a little deceptive and gives them less credit than they should get. dbp was particularly strong on this and I feel it was a form of blindness on his part.

The key thing to these possible forms of support and resistance is that they are "others-fulfilling S&R lines." What I mean by that is that despite the religious devotion often given to some types by some people every form of S&R is simply "others fulfilled" when it works or "others not fulfilled" when it breaks.

So I'd include horizontal zones, mas, trendlines, channels, and fibs in these groups. The more people who see them and use them then the more the S&R is likely to hold. I know that there is some very old writing on horizontal s&r that discusses people in a loss, getting out at point x etc etc - but really, all that adds up to is an additional audience and thus more "others fulfillment" for that form.

Personally on the short timeframes I trade (1m) I'm too damned lazy to use anything but horizontal and ma s&r. Or maybe I'm too damned slow. Hell, why would a croc add a lot of extra stuff if they can see and feel their prey?
But if I get around to daily trades on forex I plan to look for confluence of horizontal (bows head slightly), ma, channel and fibs. And what's more I'll look for PA at the SR too - price rejection forms like pins and railway tracks.

Hell, I'd love to be big enough for my MAs to be self-fulfilling.

 

[rathcoole_exile]

Yes. Although the oft used description of mas as "self-fulling-prophecy S&R lines" is a little deceptive and gives them less credit than they should get. dbp was particularly strong on this and I feel it was a form of blindness on his part.

The key thing to these possible forms of support and resistance is that they are "others-fulfilling S&R lines."

i think the "self" refers to the line itself, not the individual, so you're quite right that it refers to the actions of "others" within the market.

I'm not trying to knock the use of MAs in this fashion. I use PPs, which as you said are just horizontal variations on the same theme.

I just question the need to use MAs to identify a trend.
As someone much cleverer than me once said via PM: "if your grandkid can see it ...."

 

[options]

So whats your favourite :cheesy:

Absolutely none of them!