Working with MA's

[kevin546]

Grey1

Your MA keeps with the price very well. Applying the trend to the MA as I do looks a very good prospect.

However I realise that I am viewing the chart after the event and most look good afterwards. In real time can it throw false signals or does it keep your out due to its specific weighting.

That is one of the problems with working from the 1 min time-scale, it is fast and furious and with all the data you get on the screen methods of trading can be misleading.

The work I have followed with the 34 ema is that while it misses some of the entry positions, if one follows the correct signal then it works. You will not know how much will be on offer but if you are prepared to take small profits sometimes you do not hold on in hope. The bonus to such a system is it is very visible and easier to follow. However understanding trend, resistence and support is essential.

I also use a 3 sma which is very close to the price but is helpful when following a sudden continuous rise such as in the final stage of a rise (5th wave) when it gets ahead of itself. The ma will give a signal to close early and having seen 3 rising sequences I would close especially if it has gone outside the ema channels from the 15 min timescale.

Before you posted the charts this evening I found your topic quite hard to follow (I am a simple chap you know) any specific works on this that make a good easy flowing read. What charting software are you using.

 

[Grey1]

Kevin,

The dynamic MA is more profitable than SMA or EMA for obvious reasons.. It is much more advanced in terms of adapting itself to market character.. It performs far better in trending market but will whipsaw too when market oscillates.. it is not HOLY GRALE but not a holy GRILL either..

I have used Trade station on this chart but also use realtick from Townsend too..

My main strategy is VWAP where I have become a value Trader than a momentum one.. I have an automated system which the dynamic MA is not part of it.. I only posted the intelligent MA algorithm because Rognvld asked me to explain on the application of least SQ technique on non linear adaptive systems ..

 

[kevin546]

Grey1

Anyone who has been trading for a while will be aware there IS NO HOLY GRAIL SIGNAL.

I was just wondering if it would be significantly better than my own approach. There are different ways to deal with the problem and I suspect I am not far behind this tool with an ma ema approach one faster than the other with my overall knowledge and experience of price action etc.

Having established a set-up it is then the rest of your trading plan that is required to make a profit.

Have a merry Christmas a happy AND profitable New Year

Kevin

 

[Grey1]

I wonder if any 1 has had any work done on more adaptive RSI ?

 

[Rognvald]

Grey 1
Thank you for your effort in posting the LSQ linked MA code. In case there is any doubt I was not asking for or expecting a "road to damascus" experience. I want to broaden my knowledge and follow up on approaches that seem effective.
I haven't looked at the work of Dr Ehlers yet but will now.
I like your "holy grill"
Ron

 

[Grey1]

Rog,

This link might help.. He is also a regular contributor to TASC magazine.

http://www.mesasoftware.com/

Excellent articles for downloading too

http://www.mesasoftware.com/papers.htm

Hope this helps..

Regards

 

[china white]

kevin, sorry for the daft Q - what exactly do u mean by ema channel on 15 min? is it keltner u r talking about? if so, what smoothing numbers do u use for 15 min? i'd say it's the 1st time i hear about keltner applied to 15 min. many thx

 

[Rognvald]

Grey 1
are you amenable to some discussion/elucidation (if necessary) of these topics please

 

[Grey1]

If there is enough interest then yes I will..

Most traders seem to get scared from complicated stuff .. They rather lose their money than learn a new methodology.

regards

 

[Rognvald]

Hmm
I will do almost anything to avoid it - time can easily be spent in losing money (often a short time) but time spent in learning rather than trading only reduces the potential to lose and does not in itself involve losses

 

[kevin546]

China

Re your question:

what exactly do u mean by ema channel on 15 min? is it keltner u r talking about? if so, what smoothing numbers do u use for 15 min? i'd say it's the 1st time i hear about keltner applied to 15 min. many thx


The charts I displayed were from D4F. They provide ema bands but can be referred to as moving average envelopes or channels. They are basically 2 moving average lines, one upper and one lower to create a range. I set mine to 10 : 0.4. Obviously on different software the settings may need to be changed.

The object of the ema bands/channels/envelopes are to lock in about 95% of the price action. That allows for around 5% of the price action to move outside the range, indicating oversold and overbought. Personally I prefer to look at it that the price has just gone to far and this maybe a good time to lock in profit and there is the possibility of a reversal.

I find the 15 min chart provides a safer signal than that of the 5 min; in fact it acts as a filter. You need a tight stop when trying to reverse because at the time of entry you will be trading against the immediate trend on the intraday chart. Obviously if such a reversal is in the direction of the trend of the day then there is more upside. Basically these positions offer more potential the more the price has travelled in the preceding trend. Following entry if you are then presented with a confirmation trend signal then you have your reversal confirmed at least for some profit.

One of the main ways people trade ema bands etc is to look at the mid channel area and trade the swings in a trending movement on the basis of an impulse system using the breach or the price going close to the upper level as time to take profit. The reverse for a downtrend, sell in the mid section and close on breach of lower line. During non trending periods traders will then trade the ranges using breaches of upper to sell and hold till the lower is reached or breached and vice-versa.

I just like to use trend analysis to enter near the top or bottom of the channels and trade it until the upper or lower area is breached. I use the impulse system to take a second entry in a trend. The actual breach of the channel is when I look to take profit however if the trend appears strong I will hold for the second breach to close. When I refer to breach I mean daylight appears normally 3 or more points.

 

[kevin546]

Grey1 / Rog

I would suggest we can always learn the benefit of a better system however while one should be prepared to learn at the same time you should get to a stage where you have your own method. To many signals, however good they maybe may aid your downfall by making a reasonable system difficult to apply.

I think you just reach a stage where if a new approach is drastically moving away from your present set-up then it may prove better to give it a miss. That is providing your present system has a better than 50% win ratio.

When I now consider new data, which is not very often the first question I ask myself is how will it work with my present set-up, do I really need it and so far this year the answer has been no. Which is the first time this is happened since I started trading. The turning point for me was when I decided to form a complete trading plan and how it all worked together, entry, exit, stop policy, profit targets and open position management, risk and money management.

 

[madasafish]

Working with MAs

Well I find MAs of great value as the position of a price with respect to various MAs and their direction coupled with cycle analysis basically describes:
1. the market type: trending or oscillating
2. the direction
3. where price is in relation to direction and cycle.

My system is very simple, requires no computerised filtering but requires a human's ability to recognise what they see..

Firstly although designed primarily for daytrading (I trade DAX in a 1 minute chart) it works in any timeframe.. I also use 2 mins for S&P futures, 3 for DAX to help with direction, 5-60 and daily.

Secondly and very important support and resistance are key.. My charts are set up with automatically generated Pivot points based on H/L/C of yesterday (yellow horizontal lines)

Thirdly what happens in the day is also key so my system aurtomatically draws in the high and low of the first hour of trading from open (i.e at 9am for DAX, 3.30 pm for ES).

Fourthly I use a very simple MA crossover system to describe a potential change in direction (note POTENTIAL)
it is defined as :
for longs
MA>MA#1 and MACD >MACD.1 and (MA.1<=MA#1.1 or MACD.1<MACD.2)

for shorts:
MA<MA#1 and MACD <MACD.1 and (MA.1>=MA#1.1 or MACD.1>MACD.2)

where MA = 3 weighted (H+L+C)/3
MA #1 = 5 ema of MA
and MACD is 9exp, 18 exp, 5

and on my charts in 1 minute I draw 9 ema (dark blue/red)
38ema (yellow) and 100ema (red)

Note these are for 1 minute charts (a 38ema in 1 minute =20ema in 2 - a KEY ema)

Logic is..
When signalled long (blue arrow and CL>9ema (shown by green dots under the price (actually the 9ema of the LOWs) and where 9 ema> 9ema.1 (i.e. the 9 ema is blue).. go long..

When signalled short (yellow arrow and CL<9ema (red dots above = 9ema HIGHS ) and where 9 ema <9 ema.1 go short.

Confirm with SLOWD direction (13,3,3 stochastic lite blue/red in first box below and 38,5,5 SLOWD dark blue /red in same box.)

Alos confirmation of direction - if unsure! - from MACD in second box (red/green bars 9/18/5) and the two True Strength Indices - light blue /red..7,18, smoothed 3 and the dark blue/red.. 20,50 5 exponential smoothed).

Ignore all signals in sideways trading.. look at 3 or 5 minute charts to get direction.

Do not short at support/ do not go long at resistance.
Slow moves should be closed at pivot points.
Expect trend reversals to fail the first time they hit the 38ema (yellow) in 1 minute (2 minute 20 ema)
Volume spikes (red/white triangles at bottopm of chart) signal possible reversals..

When all stochastics are overbought or oversold (white dots) tighten stops)
Ignore all signals when they alternate in consolidations

Look at market depth (Autotrader plus IB is enough on DAX) to confirm an entry.

Try to anticipate moves at key support and resistance.. (once a trend starts it almost always ends at a Pivot Point (a yellow line).

Watch all whole numbers: eg 3900, 3800 etc as key support and resistance likely there..

Makes trading easy: lots of data.. all you need to know...

 

[kevin546]

Madasafish

Thanks for taking the time to illustrate and explain your set up. I must say yours is much more colourful,LOL. You have a great deal of data to take in which must keep you on your toes. Looks like a very sophisticated set-up, not that I would know but would appear from a range of data to give you an edge.

As you can see from my set-up I try to keep things simple, thats not because I consider more complex methods do not work just that it suits me and that is the important point for anyone trading. The set-up you use is that you are comfortable with it, there is no right or wrong way, apart from losing that is.

As a matter of interest I find on my 1 min chart that the 10 sma produces quite a good trendline indicator, keeping close enough to the price action to signal when it might be time to close.

I find the 1 min fast and furious and while I do like to make good use of the 34 ema as a trend indicator often once in a trade with initial paper profit I find to manage this deal for a better profit is to then concentrate on the following price movements using a trendline and breach of ema channels for locking in profit rather than the ema/sma.

The one problem I have with the 34 ema system and the 1 min chart it is easy to become to involved with your set-up and fail to apply other methods such as price pivots. I just seem to have much more faith in this signal from a 5 min chart than I do from the 1 min. This feature cost me this afternoon having scrambled a few points this afternoon from the FTSE I called it a day as the price moved back but failed to consider a reverse and missed on a quick 12 points just after the close.

It seems I can use the 34 ema system to good effect when the specific set-up appears and trade it accordingly but I appear to need to view the 5 min chart as my master for other areas such as price pivots and to a lesser degree extending trendlines and then the 15 min for ema channel breaches.