Moving Averages, the good, the bad and the ugly

0007

Senior member
2,376 663
The only thing which even seasoned moving averages users tend to so which is mathematically incorrect - and something I do too even though I know I shouldn't - is to plot them without shift. A mathematically correct moving average should be plotted one half cycle back. Of course, this isn't a very attractive proposition when you're trading a half-cycle further forward - on the current bar - but there you go.

The first step in using them meaningfully :)
 

darktone

Veteren member
4,016 1,084
Have you all noticed how you all talk about what has happened in relation to moving averages. Try predicting where price will move in the future using your moving average crosses -not so good eh !

Hate to **** on your parade but if ma methods worked everyone would use them. The majority of your trading success (or for most people on T2W -failure) is affected, in the main,by what goes on in your head. This has been discussed ad-nauseum on this site so often, yet one still sees people popping up with their version of the holy grail of trading with magic indicators, such as the moving average,I consider it pointless to enlarge on the point under discussion(moving averages).
Hey - you will have losses, and losing runs, but it's how you manage them (among other things) that makes you profitable or otherwise.:rolleyes:
Neil, while agree with your its all about the trader and how you manage losses points (esp the latter). But why do you see an ma cross as predictive? In the examples ive shown they are hardly that imo. When a price trades through an ma all it means to me is that it is trading stronger or weaker than its average price. For me that means jump on for minimal costs and hope that the situation continues to my target. Just a line in the sand to have a go at.
The advantage of an ma for me is that it takes the predictive elements and ego out of the directional equation. A whole lot less to think about when trying to manage your position.
 
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darktone

Veteren member
4,016 1,084
Just kidding. As NVP suggested and as seconded by Neil, beauty is in the eye of the beholder - there area as many ways to use moving averages as there are pointless analyses of the relative efficacy of systems based purely on using them alone.

While I am sure there are many experienced traders who do not use them, there are likely as many that do. They are the least reconstituted of all time & price indicators and therefore the least subject to noise.

The only thing which even seasoned moving averages users tend to so which is mathematically incorrect - and something I do too even though I know I shouldn't - is to plot them without shift. A mathematically correct moving average should be plotted one half cycle back. Of course, this isn't a very attractive proposition when you're trading a half-cycle further forward - on the current bar - but there you go.

As a aside, this is why the ichimoku is possibly one of the better moving average derivatives as it does precisely this.
:confused: I think you might be thinking too much PB!
 
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Splitlink

Legendary member
10,850 1,234
It seems to me that most crosses coincide with a breakout, anyway. It can be used as a confirmation. Once the trend is in progress the longer averages can provide a useful indication of where to re-enter, or add to a trade. The shorter average might be found useful for noting loss of momentum and a spot to take profits.

Entering, though, on a cross? I am, usually. in by then, for the above reason.

Another problem with crossovers is the whipsaw factor in a ranging market and it is one that happens a lot.
 
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