Moving averages

[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]

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.

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.

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?

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

Does anyone use moving average lines as support and resistance zones?

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.

Do people make buy and sell decisions around the moving average line, depending on the slope?

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 ;-)

 

[TheBramble]

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

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.

 

[Lord Flasheart]

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.

 

[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?

 

[Lord Flasheart]

Money management is a more general term that includes risk/reward ratio
R/R is what you stake for the returns you hope for. Many traders concentrate on looking for something that works well.They may find a MA that works say 55% of the time,which is excellent,BUT it is worthless if your winning trades are less than your losers.You can win 75% of the time and still lose heavily.New traders generally take profits far to early and let loses run.It is a major emotional barrier that has to be addressed or you will never win,its a simple as that.
Take a 5min chart and put a simple moving average of say 7 bars and do this and you will see what I mean.Say its the FTSE. Take each trade every time it passes through the average with a 7 pt stop. Set your targets at 7,14,21,and 28 pts. 7 pts is a R/R of 1/1
14 pt is a R/R of 2/1, 21 is a R/R of 3/1 and 28 is a R/R of 4/1. Look at the 7pt target compared tp the others. They may all show a loss but it should show a clear advantage to the higher R/R and should prove the point.

 

[lacktasid]

In my way, about MA i use the basic famously, so have 2 MA line match together.

Example My short term

- 4EMA & 9EMA

- 9EMA & 18EMA

- 5EMA & 20EMA

The best sig are when the short period pass the long period...

Have a nice trade.

:cheesy:

 

[squall321]

i use a 13 ema

 

[lacktasid]

why 13EMA i think it's not clear. Please advice me. Thanks..

 

[Anne Onymous]

Hello,
Why 13EMA, 20SMA, 100WMA? Why EMA over WMA? And how about TMA, KAMA? The consensus with MAs is that of trial-and-error for the most part.
You will rarely find equity traders in the market without 50, 100, and 200 SMAs plotted on their daily charts. On the other hand most FX players would agree a 144EMA is quite reasonable for majors. But there are not any particular standards for the most part, and those that exist have usually been the result of any specific market's cyclicality. The reason is that the definition and use of MAs is highly market-dependent therefore if you want to optimise the effectiveness you have to test and assess. Or you can use common values as long as you keep in mind that this will limit your confidence level, such that you may want to look for additional sources of confirmation for any given signal.
All in all, you can have the same argument for oscillators. 14-day RSI, 26-12-9 MACD, etc.. are religiously used by many players whereas some prefer to tweak those values a little to fit their particular markets, their particular timeframes, and their particular strategies. It is not a right/wrong situation, rather a quest for the most suitable solution for yourself as a trader based on the instrument you focus on.
I strongly believe that a 20SMA-100SMA crossover strategy has worked very well for all instruments under the sun for a period of 6months at some point in their trading life. But say you trade Gold now, my advice is to find which values fit its current behaviour best rather than hope it's his turn to obey the 20-100 crossover rule.
Hope that helps at all.

 

[squall321]

why 13EMA i think it's not clear. Please advice me. Thanks..

hi
i found with 13 ema price retraces to it, or near it, a lot of the time. so i use it for a support/buying area (or resistence/shorting area in a downtrend)

 

[poisonivy0]

I use 8 EMA, 25 EMA & 60 SMA works very well for me

 

[jonboy123]

lacktasid: ive read in a book to not use MA below 8...you using those 5 and 4MA for day trading short time frames?

cloud: 13MA...on daily charts? you a long term or short term trader? equities or indices? (sorry for qa)

Ive also read the EMA should be used insteal of SMA, alexander elder books say this.

 

[Chorlton]

lacktasid: ive read in a book to not use MA below 8...you using those 5 and 4MA for day trading short time frames?

cloud: 13MA...on daily charts? you a long term or short term trader? equities or indices? (sorry for qa)

Ive also read the EMA should be used insteal of SMA, alexander elder books say this.

Can I ask why you are so hung-up on specific MA settings that are written in books? By all means learn about them from a generic standpoint but then use that learning and apply them to your particular situation.

Just because a particular MA length/type works well on one particular chart/s, does not automatically mean it will work on everything else.

You need to study them on the environment that you intend to trade and make your own conclusions.

 

[jonboy123]

Can I ask why you are so hung-up on specific MA settings that are written in books? By all means learn about them from a generic standpoint but then use that learning and apply them to your particular situation.

Just because a particular MA length/type works well on one particular chart/s, does not automatically mean it will work on everything else.

You need to study them on the environment that you intend to trade and make your own conclusions.

i hear ya. I just wanna learn and get the basics under my belt...so im making sure and stuff.
how would you tweak a MA to highlight a good setting in your chosen chart/market? just keep adjusting until you can decipher some kind of pattern off of bouncing around the price candles?

 

[Chorlton]

i hear ya. I just wanna learn and get the basics under my belt...so im making sure and stuff.
how would you tweak a MA to highlight a good setting in your chosen chart/market? just keep adjusting until you can decipher some kind of pattern off of bouncing around the price candles?

An interesting Question.........

Firstly, I should make it clear that (i) my own focus is on "mechanical system design" and not discretionary trading, and (ii) I only trade Price and Volume relationships , so my answer is probably going to be biased towards this. I do use the occasional MA but purely to define trend direction in a simple way.

Can I ask why you are keen to look for possible patterns originating around price "bouncing" off a particular MA?

We all know that Prices can and do bounce of MA's. I can't disagree with this. However, what I would want to know if I were you is if it happened regularly and consistantly enough to provide some form of "edge" which you can profitably exploit going forward.

The only way to gain some confidence about this is either (i) plenty of screen time, looking at chart after chart, time period and time period, etc, etc or (ii) by backtesting/forward testing. The former is preferred but if you don't have the time then the latter is IMO a good alternative.

Tweaking / optimizing an MA setting sounds like a good idea but one needs to be aware that you will be curve-fitting it to suit your current price data. This is not so much a problem if you only intend to trade a few charts as they might exhibit the same price movement "characteristics" but this may soon become a problem if you try to apply it blindly to many charts (say FTSE100, FTSE250, S&P500, etc, etc)

If you are new to Trading my advice would be to focus initially on price action and understand how price on the charts which you intend to trade "move" and "react". Once you have some level of understanding then look to develop a strategy around exploiting that.

Just my 2cents,

Chorlton

 

[squall321]

lacktasid: ive read in a book to not use MA below 8...you using those 5 and 4MA for day trading short time frames?

cloud: 13MA...on daily charts? you a long term or short term trader? equities or indices? (sorry for qa)

i use 1hr charts for forex mostly

i don't really think there is an exact setting, i mean what's the difference between 14 ema and 13 ema, seriously?

i just use it as a buying/shorting area in trends. so if price was in an uptrend and i watned to enter, but price was miles away from the ema already, it's totally overbought for the short term so i'm not entering there.