# Moving Averages - Dr Shane Oliver



## Muschu (17 May 2008)

In this morning's West Australian, Dr Shane Oliver, AMP chief economist, is quoted as saying:
"From a technical perspective both global and Australian shares are looking overbought after their strong rally from mid-March and they are now up against technical resistance associated with their trailing 200-day moving averages."

A question:  Is a 200 day MA a period of time more likely to be emphasised and used by "longer term" traders?  
[I'm assuming that most analysts use a variety of periods but am wondering whether shorter-term or day traders place their greater emphasis on a much shorter MA period].

Comments very wlecome and appreciated.

Thanks

R


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## tcoates (17 May 2008)

For better or for worse the 200 day moving average is considered as the long term trend of the market. There are numerous articles on the net on this average... just google "moving average 200 days" (without the quotes).

For example:

http://www.themoneyblogs.com/morpheustrading/my.blog/200-day-moving-average-is-a-brick-wall.html


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## tcoates (17 May 2008)

Just to add to my prev. post...

moving average are used because they are simple enough to understand. 

If you look a trader mike's web site (http://tradermike.net/), it uses the 10 day moving average for short term and 50 days for medium term outlook.

Tim


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## Muschu (17 May 2008)

tcoates said:


> For better or for worse the 200 day moving average is considered as the long term trend of the market. There are numerous articles on the net on this average... just google "moving average 200 days" (without the quotes).
> 
> For example:
> 
> http://www.themoneyblogs.com/morpheustrading/my.blog/200-day-moving-average-is-a-brick-wall.html





Many thanks Tim.  I printed and read the first of your referneces and am about to do the same with the second.  I really appreciate [and needed] the help.
Thanks again
Rick


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## tech/a (17 May 2008)

> technical resistance associated with their trailing 200-day moving averages."




What resistance.
Its a line on a page calculated from the past price action of the last 200 bars.
It has NO technical resistance.

Typical mumbo jumbo to impress the masses.


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## Pager (17 May 2008)

Not sure why its the 200 that you often see quoted, as far as i can see its no more relevant than the 150, 180 etc, its a long term moving average that's all, for shorter term time frames you often see 18 mentioned.



Moving averages can be useful but IMO only for determining the overall trend of for the time period your looking at, for me they don't really give a good indication of support or resistance, a 200 period is also going to lag the market somewhat so by the time its tracking higher/lower the market will have moved.

At the end of the day, open a chart of any stock/index/commodity and put a whole range of averages on it, then see if 200 is any better at determining support/resistance than a random number like 148, 173, 167 or the next number that enters my head !.


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## Timmy (17 May 2008)

tech/a said:


> What resistance.
> Its a line on a page calculated from the past price action of the last 200 bars.
> It has NO technical resistance.
> 
> Typical mumbo jumbo to impress the masses.




Possible the best definition of a moving average I have read thanks Tech!


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## Muschu (17 May 2008)

Sometime [yesterday I think] I was looking at an ASF thread - which seemed to be discussing the ultimate value of TA.  I offered no view because I have no experience in this field.
What I found interesting however was that there seemed to be some opinions along the lines that, no matter how sophisticated TA may appear, there always remains elements of guesswork.  To me this makes sense in that, otherwise, all experienced TAs would be very consistently successful and have excessive $$$ dripping from their pockets.
Is TA a competition between techniques or advocates-thereof rather than a sophisticated, largely accurate, guide to investing? I think one contributor referred to the KISS principle.  
In reading that thread I found much of it, to me, to be gobbely-gook.
Is there non-anecdotal research which indicates that simpler approaches to TA are less successful than those which are apparently more technical?
I have no idea where the truth might rest.
However, to my knowledge, Shane Oliver has no newsletter or system to sell; is well qualified and experienced in his field; and should not be assumed to have a hidden agenda.
Why would he have any deliberate intent to confuse the common investor?
I can see no reason to put down the man without having very clear evidence that he is not well-intended.
Just thinking .. 
Regards
R


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## tcoates (17 May 2008)

Tech - When prices are below the moving average (falling market), when they meet the moving average, it is considered resistance. Is the same as when prices move upwards, a moving average acts as support. (Therefore in a falling market (Jan 2008 to ???) it is resistance)

The sole purpose of the moving average is the clear away the clutter to create a smoothed view - how you choose to use it, or act on it..... Don't blame a moving average for what it does? Or that it lags! Or that 200 days was chosen to represent the long term trend. 200 days was prolly chosen as it is a nice round number that nearly represents a year.

Tim

PS. Moving averages can also be used in reversion to mean applications.


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## Timmy (18 May 2008)

Muschu - re some of your questions.

The reference to TA having an element of guesswork, this may be someone's opinion but for me having a guess does not enter into the analysis at all.  There is always uncertainty in the markets, perhaps this is what the poster was referring to?

Consistently successful TAs?  There is a spectrum of results from TA traders.  Just as there are highly successful fundamental analysis investors, as well as a large bunch of losers and also-rans, I would suggest a similar distribution applies to TAs.

Is TA a competition between techniques etc....  Yes, there is such competition.  I think much of this may well stem from the desire amongst various vendors of training and software to portray their method as the only valid approach (and hence increased sales of said training &/or software).  This is logical from a marketing/business perspective, but the shame, for me, is when inidividuals adopt the company line and spend a lot of time bickering with other individuals about the merits or not of their approach instead of working on the analysis and trading itself.  I don't want to come across as being on the moral high-ground here, I think the approaches I employ in TA are the right approaches and will defend my choices, but I will also accept that others have different points of view to me and am happy to live and let live.  Sorry to go on and be boring about this - this bickering between the various TA camps is a bit of a sore point with me.   

Non-anecdotal research on the effectiveness of various approaches to TA ?  I am not aware of any, no.  As far as I know much research funding goes toward studying land rights for gay whales, right?

Re Shane Oliver.  He has an important role as a spokesperson and hence salesperson for his employer.  His intent in making comments is to portray AMP as an organisation that understands the complex world of finance and investment, and that therefore investors would be better off putting their investment money with his firm rather than with other firms, or rather than trying to manage it themselves.  I don't know what the performance of the various AMP equity funds is like, I imagine they are part of the pack of also-rans in terms of results compared to the index (but am happy to be shown to be incorrect in my view in which case I withdraw my comments), so perhaps his comments are intended as a distraction from these results too?

Just one more thing Rick - back to your original question.  The 200-day moving average is widely referred to by many longer-term traders/investors.  It does pay to understand how it is calculated, though, as what tech said about it having no value as real resistance is correct.  Any resistance properties it may have will stem from a 'self-referential' effect - those that look at it may well think to sell because they think that others are looking at it and these others may be selling too.  As far as traders using shorter-term moving averages, I am not in the moving average camp of TA so couldn't comment with any authority, but yes, generally those with a shorter-term trading perspective will place more weight on shorter-term moving averages.

Interesting subject matter - good discussion so far.


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## motorway (18 May 2008)

> The use of moving averages eliminates some of the noise, but it does so on the cost of a time delay (lag). The more the stock signal is smoothed, the larger the time delay becomes. For example, a 10 day's moving average has a lag of about 5 days. This has a major impact on your trading decisions because they will always lag 5 days.






1) A moving average filters out all fluctuations that are equal to
or shorter in duration than the moving average time frame. 

2)Moving averages lag the market; their placement in current
time on most stock charts is theoretically wrong.

3)(Simple) Moving averages should be plotted back one-half their time span from the most recent day’s data.

OK The half span of a 200-day moving is 100 days. 


So a 200-day moving average should be placed back 100
days on a chart. ( If we really want to see what it is revealing and not revealing )

Here you can see it defines a smooth trend
but clearly with a 100 day lag !

( the lag is more apparent with the average placed correctly in time )

Is it useful ? 
Depends if you want to define a lagging trend at that scale, maybe.

But as a trading signal ?

IF enough people follow something ( like this and usually plotted incorrectly)
Then it will cause an oscillation in price 
liquidity will be generated or reduced.
Which will Create opportunity for others.



Obviously the shorter the average the less lag ( and less harm ? as a "signal" )

Other forms of average weight more recent data
eg Exponential..But still there is lag, just a little less..

Some research suggests that the use of 
moving averages destabilizes mkts and causes chaotic price movements

Just the thing for catching stops and causing false breakouts.

The longer the average and the more it gathers a following
the more likely for chaotic movements to occur.

I define a method by what you are attempting to measure
What is  a moving average  that was the trend 100 days ago useful for..?

It is a type of trend line 100 days old.
Which can be projected forward. ( just draw a line )



Hope that is helpful---And anything can be useful
depending on your purpose---> A clear pupose.


motorway


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## tech/a (18 May 2008)

Muschu said:


> Sometime [yesterday I think] I was looking at an ASF thread - which seemed to be discussing the ultimate value of TA.  I offered no view because I have no experience in this field.
> What I found interesting however was that there seemed to be some opinions along the lines that, no matter how sophisticated TA may appear, there always remains elements of guesswork.  To me this makes sense in that, otherwise, all experienced TAs would be very consistently successful and have excessive $$$ dripping from their pockets.
> Is TA a competition between techniques or advocates-thereof rather than a sophisticated, largely accurate, guide to investing? I think one contributor referred to the KISS principle.
> In reading that thread I found much of it, to me, to be gobbely-gook.
> ...





I have no doubt Doctor Oliver was just making a comment.
I also have no doubt the he would not see himself as a technical analyst of shares.I'd also bet any discussion with him regards the validity of technical analysis would also bring a learner-ed argument against.The mans an economist---a very good one.

On technical analysis.
The argument that the goal posts keep changing is common and a valid one for those investigating this form of* "Crowd behavioural trading analysis"*

Radge puts it best although he meant technical analysis I'd personally expand it to ALL analysis.

Analysis is simply making judgements that you'll

Prove
Disprove
Prove
Disprove.

Your simply quantifying the most likely outcome. Its either proven to be correct--You benefit--Or incorrect--you do something about it (Well the good and profitable traders do).
---Technical OR Fundamental ---- Ive traded technically for 14 yrs.
Some of my results are chronicalled and still traded live---you can pass judgement with the bottom line if you wish.
http://www.thechartist.com.au/forum/ubbthreads.php?ubb=showflat&Number=64178&page=1#Post64178

Analysis--
It is really simple and although Motorway appears complex his technical trading specialty really it is very simple and very very effective.

Yes simple works.


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## Muschu (18 May 2008)

Many thanks Timmy and Motorway [as I previously thanked Tim] for comments that strike me as intrinsically constructive.  [I must admit my naviety means I don't yet understand some of your remarks Motorway, but I'll work on that!]
I did a search on where I had read on the issue of TA and guesswork, in an excellent thread "How Much Analysis is Enough.." etc - started by tech/A.
May I make a few additional observations form your comments please?
- Maybe the use of the word "guesswork" is semantical.  Perhaps "educated guesswork" [or a better term closer to the mark]?  But if you [ie TAs in general] are trying to predict an uncertain market [and isn't this the actual point of TA] and you are not very highly consistent in doing so - then is the market at fault or the system?  
- Timmy I agree with you, from what I've seen, about the "bickering" between TA camps.  Does this expose the vagaries or inconsistencies of various TA strategies or does it reflect on the TA proponents themselves?  
- Land rights for gay whales : I liked that.  But surely there's enough funds in broking houses to research TA alternatives?  Imagine the windfall if/when they get it right.  They would no longer need clients.
-Shane Oliver: While I agree with most of the points made, maybe there is one to add.  Whether I worked as an employed economic commentator or in one of many other professional capacities I would also consider it important to protect my professional reputation and credibility by making the most informed comments that I could.  And while some ASF contributors could, hypothetically at least, know more than a leading professional in the field I see no reason [without evidence] to assume that this is the case.  In fact a few ASF comments see be far more emotive than rational.
- Thanks for your closing comments on the MA200 Timmy - I found these very informative.
- Motorway, your comments added a further positive dimension to the topic for me to look at - thanks.  My immediate reaction was to ask how you insert a 100 lag onto a 200MA?  This would be really interesting to know -- as long as I can follow the answer.
- I also get your point which starts "If enough people use a system like this...." etc.   But is the corollary true?  Surely a very little known system will be in its infancy and be only at the stage of developing evidence of success?  [Mind you there have been some precocious (real) infants out there who have had outstanding success in various fields...]

At the end of the day doesn't it come down to this:  Won't a quality TA system, irrespective of its complexity or commonality, generate quality results consistently enough to bring its users measurable success of a high order?

Now I might go and watch my grandson play footy.

Have a good day everyone.

Rick


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## tcoates (18 May 2008)

Rick62,

PLOTTING MOVING AVERAGE WITH DISPLACEMENT

Depending on the software used you should be able to do as part of a plotting function. In AmiBroker

m = 0;
P = 200;
Displacement = -100;
m = EMA( P, Periods );
Plot( m, _DEFAULT_NAME(), ParamColor("Color", ColorCycle), styleLine, 0, 0, Displacement );

SOME IDEAS FOR A MOVING AVERAGE

Only one idea here - but I plot a weekly moving average on a daily chart. It lets me see the bigger picture without necessarily having to switch a chart between daily and weekly views. It provide a guide as to where the stock has been.

Tim


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## wavepicker (18 May 2008)

motorway said:


> 1) A moving average filters out all fluctuations that are equal to
> or shorter in duration than the moving average time frame.
> 
> 2)Moving averages lag the market; their placement in current
> ...




Motorway,

excellent summary and explanation. The best by far I have seen on this thread. The placement of the MA on the chart you have posted is 100% correct. Can you you use this information despite the lag component of the average relative to the data? The answer is absolutely yes, in fact IMO it's the best way to use an MA. For starters price is now in phase with the average(depending on what span average you use that is). This is the best way to use mean reversion analysis with MA's. Conducting mean reversion with the MA plotted in a convntional fashion is actually a waste of time such as in Bollingers.

By detrending the the price action from the centered MA it is a huge leap forward as we are now in a position to determine various cycles in play given that you have determined the Dominant Cycle to start with and represented it with the span of the centered MA

Cheers


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## tech/a (18 May 2008)

All your doing is positioning historical data sets.
Of course you will see oscillation it's has to----around its own data.

Determining forward oscillation--possibly provided the data remains within a mean over the period of prediction.
The longer the data set the smoother the data averaging will appear.

Of little practical use in my book.
Fortunes in the making for others---apparently


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## Muschu (18 May 2008)

tech/a said:


> I have no doubt Doctor Oliver was just making a comment.
> I also have no doubt the he would not see himself as a technical analyst of shares.I'd also bet any discussion with him regards the the validity of technical analysis would also bring a learner-ed argument against.The mans an economist---a very good one.




Hmm, I'll see if I can contact him and ask. He certainly should be in a position to make an informed comment.  Whatever his opinion it can only add to the pool of information.

BTW an attempt to open the link referred to came up with "access denied".

Regards

R


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## Timmy (18 May 2008)

Muschu said:


> BTW an attempt to open the link referred to came up with "access denied".




You must be registered on that site to view posts (registration is free).


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## Timmy (18 May 2008)

Hi Rick - re the points and questions you raise.

Re 'guesswork' and semantics.  Yep, maybe it just is semantics, and there is probably nothing more boring on a forum than a semantic point!.  What I am trying to do with my trading (using technical analysis to do so) is recognise when certain events occur which I think will lead to a following certain movement in the price in the future. Am I guessing?  In the sense that guess is defined as making a decision with imperfect or incomplete information then yes I am.  If to guess is construed as having a wild stab in the dark with no reasonable basis for my decision, then no I am not.  

OK - now you make the point that:
"But if you [ie TAs in general] are trying to predict an uncertain market [and isn't this the actual point of TA] and you are not very highly consistent in doing so - then is the market at fault or the system?"

I think this is where a lot of traders, whether they use TA or not, would take issue with you.  Most of them will say that what is important is not being highly consistent in picking the market direction, but in quickly, with as limited a loss as possible, getting out of those trades that do not prove to be 'correct' (i.e. that you have not picked the direction correctly), and , on the other hand, pressing those trades that you have picked the direction on correctly for all they are worth.  I think tech summarised this part of the process best where he says:
"Its either proven to be correct--You benefit--Or incorrect--you do something about it (Well the good and profitable traders do)."  

Does that make sense?  So where you say "is the market at fault or the system?" most TAs will say neither ... Certainly blaming the market is tempting, but fruitless.  But most TAs will not blame their system either (that is not to say they wont work to improve it) they just recognise that they are dealing in an uncertain environment where they do not have full information (I have just bought 1000 BHP shares, but is Shane Oliver about to pick up the phone and sell 1,000,000 BHP shares for one of his funds? - who knows?) and perfect results are not possible (well, not for me anyway).  Does this make sense? (I ask because a lot of the time my writing, could be clearer...).

A great example of this is on that thread you refer to "How Much Analysis is Enough.." wayneL has posted a summary of his recent results, which show he is profitable on his trades 44% of the time, and yet his winners are returning 5.95 times the (absolute value) of losses on his losers.  Hence, he is profitable.  So, does his TA work?  If your criteria is consistently predicting the direction of the market then a win rate of 44% argues that no it doesn't work (don't flame me yet please Wayne).  But, does his trading work?  Winning trades nearly 6 times the size of losing trades - yes it does.  This is expressed as expectancy, which I wont go into here.

So, the argument goes, it doesn't matter if you are right or wrong, what matters is how much you make when you are right and how little you lose when you are wrong.

Now, in another post somewhere tech has argued that a combination of a high expectancy and a high turnover of positions is the holy grail in terms of generating high profits (I agree - also, tech apologies if I have paraphrased you incorrectly here).  In summary this means high profit per trade (on average) and high number of trades.  Do the maths here and it makes sense - if I expect to make $X per trade (on average) then the more times I can apply this, the more money I can make.  If it is 10 times per year, that is not as good as 10 times per month (for example).  This, though, goes way beyond just doing good TA, you have to address what markets to trade, what leverage to use, what position sizes, keeping the brokerage expense down, what is the basis for your trading approach (a long-term trend following approach may not be appropriate if you want to turn over positions quickly), and more.

Now, non-TA types will argue that a less than 50% 'correctness' ratio shows that the TA doesn't work.  What if you could get a much better correctness ratio and still have a 6 to 1 (or thereabouts, just picking that number because its what I have been using) win to loss ratio?  I think this is a fair question, and maybe it is why many opt for FA and a longer holding period.  If they are good at it then a higher correctness ratio will result, as well as a high win to loss rate, which sounds the best of both worlds.  The price, though, is a slow turn over of positions.

BTW the combination of high expectancy and high turnover, while the ideal, is a very difficult task (I don't think it is impossible though).  It is also enough to have a high expectancy and a low turnover (just use big - well, huge - position size - think Buffet), or a low expectancy (but obviously still positive after brokerage) and high turnover.  Obviously each trader/investor finds his or her own place along this spectrum.

Sorry to go on so long - just trying to cover all bases I suppose.

Re the bickering between TA camps - "Does this expose the vagaries or inconsistencies of various TA strategies or does it reflect on the TA proponents themselves?"  I would argue both apply.  "Vagaries and inconsistencies" is a pretty loaded way of expressing it ... so I wont speak for all TAs if you don't mind.  Maybe just recognising that in dealing with uncertainty a certain "flexibility" is often required (which you may very well say is 'vagaries and inconsistencies' - I couldn't possibly comment LOL).

"surely there's enough funds in broking houses to research TA alternatives? Imagine the windfall if/when they get it right. They would no longer need clients."
I have some thoughts on this but might leave them (I have gone on long enough) to see if anyone working currently in these areas has anything to add?  In summary, client business is always important because it is often a more stable income stream than proprietary trading income, so the two approaches to business income are complementary.


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## MRC & Co (18 May 2008)

Muschu said:


> I did a search on where I had read on the issue of TA and guesswork, in an excellent thread "How Much Analysis is Enough.." etc - started by tech/A.
> 
> - Timmy I agree with you, from what I've seen, about the "bickering" between TA camps.  Does this expose the vagaries or inconsistencies of various TA strategies or does it reflect on the TA proponents themselves?




On these points, I would strongly recommend you read 'Trading the SPI - by Brent Penfold' and 'Adaptive Analysis - by Nick Radge'.  Once you read these, you will understand the thread you referred too above without a problem and in it's entirity (along with most posts on ASF, and the books are very very quick to read, I read both in a couple days).  Very simple stuff and you will see the TA camps are not bickering whatsoever, but agreeing it's the managing of the trade and money management that is vital, regardless of your TA preferences.

As for the thread, agree with Tech/a completely.

As far as the win % Timmy talks about, this means absolutely nothing in my book, so I agree with his sentiments.  

If I buy, NAB, BHP, WBC, RIO, BKL or any other stable, long-term company today and sell it in 5 years, my win % is nearly GUARANTEED to be higher than any TA user, probably at 100% but does not neccissarily guarantee a large profit.  Profit comes down to numerous factors, from time, R:R, # of opportunities and win %.

Cheers


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## Muschu (18 May 2008)

Many thanks Timmy and MRC:
Timmy:  Thanks for going to so much trouble in your explanation.  It made excellent sense and was exceptionally well put.  Rational, logical, not emotive, knowledgeable and educational. Best I've read for someone in my position.
Your writing, despite your comment, is in fact very clear. [Alternative / additional  career path maybe?]
Back at the being of this thread I made some reference to longer term traders.  That was partly because, as a SF retiree, I am not into day trading.  [Hence my interest in the 200MA]. I probably should have made this much clearer.  Sorry.  There's a section in your post where you mentioned that "many opt for FA and a longer holding period".  This is my position although I am trying to incorporate a basic knowledge of TA as well.
Yes, I noted Wayne's success - although I think he later modestly referred to that particular period as a "purple patch".  Good on him.
However I have learned a great deal from your comments and really do appreciate the time and trouble you put into making them.  
Your closing paragraph is intriguing and I'd be interested to learn more of your views at some future time.  When I look at promotions for share-trading based seminars [that awful term "wealth creation"] or newsletters I am inclined to wonder if the some of these promoters in fact earn more from these activities than they do from the market itself.  [Please don't assume I am putting them all in the same boat.] And if a broker confidently publicises 10 strong buys then why live off the brokerage -- why not keep quit, invest and live off the profits?  Much easier.  [I'm aware that there will frequently be other issues on the agenda]. However perhaps they are just complementing their income in case their trading goes awry.  Doesn't bother me - I just have an interest in behaviour and, sometimes, in the assumptions we make about others and their motives.
I learned a huge amount from your comments T - thanks mate.

MRC:  Many thanks for the references.  I've noticed many positive comments about Nick Radge on ASF and have briefly skimmed some of his own posts. He appears to come very highly recommended in all regards.  If his seminars were suitable for someone in my [retiree] position then I'd be interested in learning more about them -- if he comes to Perth that is.  
I recently got a copy of Stan Weinstein's book [Profiting in a Bull or Bear Market - or words to that effect].  Once I manage to digest that I'll look into the books you mentioned.  I have noted the titles for future reference. Many thanks.

Perhaps I'll let Shane Oliver RIP now - his comments at least served a purpose in that I am now better informed.

All the best

R


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## wabbit (18 May 2008)

The use of Technical Analysis (TA) versus Fundamental Analysis (FA) has always caused discussion (arguments), so you'd think that all the TAers would be like-minded, and the FAers to be like-minded too? Not so.

Even in the TA ranks there are those who believe in Gantt, Elliot and other "hocus pocus"; some believe in Fibonacci, some like Wilders etc.  Some people don't believe in the random walk theory, some do.  Some TAers like to smooth out the "noise" to discover the underlying signals; some TAers trade the noise by detrending the data.  No-one will ever agree on everything; it just causes arguments.  This is especially so when it comes to trading.

Allegedly, moving averages are one of the most widely used TA tools. (I forget where I read this, so cannot reference it, but it sounds pretty much right from my observations of the past 11 years of trading)  This might be because they are "simple concepts" that people can understand (people don't like maths for some reason?), it could be other reasons.  I think the main reason that people use these techniques is to smooth out the "jaggedness" of a chart.  There have been many psychological studies into the different ways that traders view charts, much of this research has shown that as humans, traders like to see things as simply as possible. A smooth curve is much more pleasing to the eye than a jagged graph.

John Ehlers and others get into some "heavy" maths when describing finite impulse response filters, infinite impulse response filters and other digital signal processing techniques which can (?) be applied to markets; they are referring to simple moving averages and exponential moving averages but using big words and lots of maths/engineering "speak" and provide some interesting details on their applications.  Ehlers mentions MA lag as a tool that can be exploited by traders.  He and others have shown methods to remove lag from MAs.  (If this works, there should be the same chart of the XAO (daily) as motorway displayed on the previous page, but this time a "lagless" 200 period EMA is applied.)

The TA trader that uses MAs to filter out the noise might say the XAO has turned a corner and is now heading up, so take long positions.  The detrended-filter TA trader might say the difference between the index value is diverging from the MA, so enter long.  Ultimately both of these traders will take up long positions; why they chose to do so may be dependent on how they see the same 200 period MA, but neither of them will agree on what it means!

With MAs being in use (allegedly) so widely, there is the distinct possibility that these tools become self-fulfilling prophecies.  I am not aware of any rules that say when the price approaches the 200 period simple moving average from above that everyone has to start buying because the price is approaching the 200 period moving average from above!  Just because it happens, time and time again, doesn't mean it will happen again next time; next time the price might just keep descending and end way lower than the MA as if it weren't even there!  TAers will have different opinions on what causes that too, and often blame it on the FAers!

Traders must be aware of the LIKELY behaviour of the markets in these regions where "majorities" have been noticed to lurk in the past.  How you specifically get into a trade, or how you see the market may depend on moving averages, Elliot waves, Fibonacci retracements, PER, profit announcements, directors buying/selling, chicken bones, crystal balls, soothsayers, throwing darts at the finance pages etc. but careful risk management and trade management are the skills that any trader needs to be disciplined in if they are to survive.

0.02

wabbit


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## motorway (18 May 2008)

> That was partly because, as a SF retiree, I am not into day trading. [Hence my interest in the 200MA]. I probably should have made this much clearer. Sorry. There's a section in your post where you mentioned that "many opt for FA and a longer holding period". This is my position although I am trying to incorporate a basic knowledge of TA as well.




If most things people do is lag

what is it they lag 

Of all lines on a chart that can be drawn ( indicators included )

What is the one line that either projected or shifted

( projected = extended , Shifted = moving the entire line forward of backward )
Does not change its value ?

And even with this be careful how you use it.

Here is a free e-book
that a longer term investor working from fundamentals 
and wondering about the why of Technical approaches
might  find interesting .

http://www.clayallen.com/Winning The Performance Game 12-16-2006.pdf


motorway


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## Kauri (18 May 2008)

I have always found the 193.7034 MA 
to be a good one... 
until everyone else.. 
cottons on to it ...
 that is...

Cheers
...........Kauri

:bier:


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## dhukka (18 May 2008)

Muschu said:


> In this morning's West Australian, Dr Shane Oliver, AMP chief economist, is quoted as saying:
> "From a technical perspective both global and Australian shares are looking overbought after their strong rally from mid-March and they are now up against technical resistance associated with their trailing 200-day moving averages."
> 
> A question:  Is a 200 day MA a period of time more likely to be emphasised and used by "longer term" traders?
> ...




You mean the same emminent Dr Oliver that predicted the All Ords would crash through the 7000 mark in 1Q08? Why people put so much credence in what the so-called experts say, who get it as consistently wrong as they do right, continues to amaze me.


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## Muschu (18 May 2008)

dhukka said:


> You mean the same emminent Dr Oliver that predicted the All Ords would crash through the 7000 mark in 1Q08? Why people put so much credence in what the so-called experts say, who get it as consistently wrong as they do right, continues to amaze me.




I'm sorry but this is really dreadfully silly.  I had planned to be quiet on this thread but...
On ASF I have read posts from people saying that the All Ords will reach the high teens; or that they won't buy BHP until it is under $20 -- Are these perhaps self-appointed experts? 
At times it strikes me that there is a real competition to be the gloomiest prophet out there; to be a better expert than the experts; while, at the same time, professing to being a highly successful trader -- best of both worlds with all bases covered -- 
I don't know if Dr Oliver would describe himself as "eminent" - I suspect not.
When did he make this prediction?  What was the wording?  Where is the evidence that he is wrong as often as right?  [He may be, but please deomonstrate it.]
What differentiates a "so-called expert" from a real expert? What criteria defines the latter?  Who establishes these criteria?  
In this uncertain world isn't there a place for us all?
I am as amazed by your view - as you are by the views of "people".  It certainly _seems_ easier to criticise than to praise.

I'm almost sorry, apart from the positive comments received [which I hope I have duly acknowledged], to have started this thread with what I thought to be a simple question -- not a statement of commitment to any strategy or guru.


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## Muschu (19 May 2008)

motorway said:


> If most things people do is lag
> 
> what is it they lag
> 
> ...




Thank you Motorway. I enjoyed this.
I also saved the 243 page book to my favourites for reference.  At first glimpse it looks very interesting.
Regards
Rick

PS - I thank everyone for your comments and will leave this thread be now.


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## dhukka (19 May 2008)

Muschu said:


> I'm sorry but this is really dreadfully silly.  I had planned to be quiet on this thread but...
> On ASF I have read posts from people saying that the All Ords will reach the high teens; or that they won't buy BHP until it is under $20 -- Are these perhaps self-appointed experts?
> At times it strikes me that there is a real competition to be the gloomiest prophet out there; to be a better expert than the experts; while, at the same time, professing to being a highly successful trader -- best of both worlds with all bases covered --
> I don't know if Dr Oliver would describe himself as "eminent" - I suspect not.
> ...




Now I'm amazed at your emotional fragility. The reference to 'eminent', is one that I made myself on this forum last year. Oliver is almost always referred to as 'Dr Oliver'. I believe the title conveys an air of expertise. I did a quick google on Oliver and one of the first references named him as an expert.

I find this amusing for a couple of reasons. As anyone in academia knows, (providing they have the capacity to be honest with themselves) all a doctorate really says is that you devoted three or more years of your life to some narrowly defined specialist area and produced something that will probably never be read by anyone nor is it readable to anyone except other so-called experts.

Secondly, as anyone familiar with the topic of economics knows, it is little more than a speculative area of investigation. That Nobel prizes are awarded in the field of economics to people whose theories are then blown apart only 10 years later attests to that. But I digress.

Dr Oliver made the call on the XAO cracking 7000 in 1Q08 back at the end of July. Here is the quote:



> *Market is just correcting itself*
> 
> Mr Oliver says over the next six to 12 months the market will continue to rise, as the $US100 billion loss represents only 1 per cent of the total outstanding mortgages in America.
> 
> ...




Do a search on this forum and you will turn up other quotes from Oliver from last year that turned out to be horribly wrong. 

Also check out the rather tragically named Oliver's Insights. They only have 6 months worth of history so fortunately for Oliver you can't see the magnitude of the errors he made last year although you can still probably find some gems. 

When I got in to the stockbroking industry in 1997, Oliver had already established himself at AMP as chief economist and because AMP at that time was (and still is?) by far the biggest money manager in Australia, sell side analysts generally listened to what he had to say. I don't have a running scorecard of his track record but I can remember a fair amount of derision going his way. 

The guy makes predictions on the short to medium term movement in the stockmarket. That by its very nature means that he is often going to be wrong. I have nothing against discussing Oliver's comments, however the opening post seems to take for granted that Oliver's opinion is worth something more than the average punter. I think that assumption should be viewed with a degree of skepticism given Oliver's recent (evidence provided) and historical (no evidence provided) track record.


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## dhukka (19 May 2008)

The above is not meant to imply that all academics produce nonsense of no value. Of course there are exceptions and some amazing stuff is written that provides great insight. However, that is very few and far between IMHO.


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## Muschu (19 May 2008)

Hi Dhukka

Can we perhaps terminate our discussion by agreeing upon the following:
- Dr Oliver's quote was pre-August/September.  Like many others he failed to predict the future accurately. Fine.
- We have differing views on the value of most PhDs.  Fine.  [I hope my own post grad studies in psychology, education and business were not without purpose].
- Similarly we have differing views on the value of economics. Fine.
- Stockbroking may also contain an element of investigative speculation.
- Perhaps we are both easily amazed and amused.  Don't know.
- Emotionally fragile?  Big call based on little info.  I don't mind.
- I acknowledge that I did not seach ASF to locate your earlier use of the term "eminent" in relation to Dr Oliver.
- Original post contains an element of assumption? Given that it consists of a newspaper quote and a simple question, I am satisifed to leave this comment of yours to others to make up their own minds.

Bottom line is that it seems we disagree and I am sure we can both live with that.

Regards

Rick


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## tech/a (19 May 2008)

*AND*

A moving average is still a line on a data set plotting a period average selected.
Reagardless of how you plot it.
Nothing more nothing less.


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## howardbandy (20 May 2008)

Greetings all --

One of the postings to this thread mentioned Dr John Ehlers.  Here is a link to Ehlers' home page, which has links that will let you download his PowerPoint presentations and indicator code.  It is considerably more complex than moving averages.

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

Thanks,
Howard


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## howardbandy (20 May 2008)

Greetings all --

We can test this.  Here is the AmiBroker code.

// Test200dayMovingAverage.afl
//
//	Is it profitable to Buy when the closing price rises
//	through the 200 day moving average, and Sell when it
//	drops down through the 200 day moving average?

MA200 = MA(C,200);

Buy = Cross(C,MA200);
Sell = Cross(MA200,C);

Short = Sell;
Cover = Buy;

Plot(C,"C",colorBlack,styleCandle);
Plot(MA200,"MA200",colorBlue,styleLine);

PlotShapes(shapeUpArrow*Buy + shapeDownArrow*Sell,
	IIf(Buy,colorGreen,colorRed));


I ran this program using a list of the current stocks in the S&P 500 composite.  The list I have has 497 entries.  The date range was 1/1/2000 through 5/16/2008.  End of day data, trading on the close of the signal bar. 

For Long-only:  78 tickers showed a profit, 415 a loss.  Most losses were completely bankrupt.

For Short-only:  9 showed a profit, 485 showed a loss.

So ---- should we Buy when the price rises through it's 200 day moving average?  Probably not.

Thanks,
Howard


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## Muschu (20 May 2008)

howardbandy said:


> So ---- should we Buy when the price rises through it's 200 day moving average?  Probably not.




Fascinating Howard.  Thanks.

Would it be valid to test this with say only 20 diverse and hand-picked stocks from the ASX100 with a 30 or 50 day MA?  I have no idea - but could nominate the stocks if you think the exercise has any merit.  If it has zero merit please just say so.

Thanks for the contribution.

Rick


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## motorway (20 May 2008)

http://www.mesasoftware.com/Seminars/TSWorld05.ppt

non linear , adaptive , median , phases , cycles



FRACTALS even...


But, it just looks like a complicated way of doing Point and Figure.

( superior or inferior is a valid question ... P&F is 100% all of the above without any optimization or lagging of parameters )

The PPT reminds me of a 1926 book .

P&F sssshhhh

motorway


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## howardbandy (21 May 2008)

Muschu said:


> Fascinating Howard.  Thanks.
> 
> Would it be valid to test this with say only 20 diverse and hand-picked stocks from the ASX100 with a 30 or 50 day MA?  I have no idea - but could nominate the stocks if you think the exercise has any merit.  If it has zero merit please just say so.
> 
> ...




Hi Rick --

The "talking heads" regularly make statements like "yyy stock is above its xxx day moving average and that is bullish."  

Using whatever trading system development platform you wish, vary the "200" in the 200 day moving average code in the system above and see if the stocks you are interested in are profitable in the days immediately following the bar where the price crosses up through the moving average.  Or where a short term moving average crosses up through a longer term moving average.   

Then try the other direction.  Try buying when the price, or a short term moving average of the price, crosses down through a longer term moving average.

In my experience, most common stocks do not show a profit when a moving average crossover is used to initiate a trend-following trade.  But, most do show a profit when a moving average crossover is used to initiate a mean-reversion trade.  The holding period for the mean-reversion trade will usually be just a few days, or perhaps a week or two.

Be careful to avoid "optimizing the symbol space."  If I try a system on 500 stocks and it works on 450 of them, I might have discovered something universal and potentially profitable.   If it works on only 50 of them, then I have a system that does worse than random and I should not trade even those stocks where it showed a profit.  (Unless there is something unique about those 50 so that they act in a similar fashion, but no others do.)

If I hand pick 20 stocks that show a profit, and they are diverse, then I am probably fooling myself.  If I hand pick 20 stocks that have a common theme (like they are all gold producers), then they will tend to act the same.  In fact, an index made up of those 20 will be much easier to model than any of the individuals.  For example, look at the nine S&P Sector Exchange Traded Funds -- XLB, XLE, XLF, XL... -- it is fairly easy to develop models that trade these profitably.

Thanks,
Howard


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## howardbandy (21 May 2008)

motorway said:


> But, it just looks like a complicated way of doing Point and Figure.
> 
> motorway




Hi Motorway --

When you have time, read one of  Dr. Ehler's books or work through some of the examples from his presentations and technical papers, then code them for use in your favorite trading system platform.  They are considerably more powerful than point and figure.  

In my opinion, techniques such as he describes will play a big part in the future of mechanical trading systems.  

Thanks,
Howard


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## motorway (21 May 2008)

Hello Howard,

have you done any work on P&F ? 

Which is really a digital filter... discretization by price( % or arithmetic )  rather then by time.

tIME then become the speed of unfolding Time

and there is no need to switch between frames of tIME

eg We can represent a P&F chart as

a series of 1s & 0s

00011011101111001111

These binary digits represent price , but dynamic price 

So there is speed acceleration and higher derivatives ( eg jerk )

and it  is like a flow of a river.... So it dams up builds potentials etc

We can also see smoothness or turbulence

eg a very solid ( perserverating ) up pattern

is 011011011011011011011011011011011 


P&F are two dimensional price charts with time as speed and not frame

eg We do not watch a wild animal every  x time periods 
because it changes rhythm---It changes speed and  IT STRIKES..
So we better watch for units of movement and preparation...

To the extent I have looked at one dimensional price charts ( trying to make them non linear , adaptive , timely )..they are not as useful

you do not know ahead of time when the "strike" will occur ( so what time frames are relevant  ) But we do know what the "striking distances" are and what are relevant movements.. If it moves we act in time.


hence I find moved based price discretization ...Two dimensional price charts
that incorporate time as is should be ( non linear )

in other words P&F  very powerful

As much broken rhythm and speed change as there can be
P&F is on the job
because it is  100% adaptive  there are no gaps

IF it moves there is something moving it..

motorway


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## Muschu (21 May 2008)

I wish some of you guys spoke English... This would be a great help to me.  
Seriously, I appreciate your comments and observations but I'm starting from scratch over here.  
Thanks
Rick..


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## MRC & Co (21 May 2008)

ha ha, your not alone Rick!

Many here use various methods, so when someone starts talking to you about their method, in the language of that method, it can become very confusing 

The more you learn, the more you will understand, but there will always be many things posted here you still have no idea about!

It's really about finding the strategies you think appear the most realistic, you enjoy and then finding your niche.


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## motorway (21 May 2008)

Muschu said:


> I wish some of you guys spoke English... This would be a great help to me.
> Seriously, I appreciate your comments and observations but I'm starting from scratch over here.
> Thanks
> Rick..




Hi Rick , My comments were addressed to the material Howard posted.

As an intro to P&F 

We chart price movements to identify opportunities

OK a chart has  two dimensions

On bar and candle charts there is price on one axis ( the vertical ) and time
what I designate as tIME on the other ( the horizontal )

This time is the Solar ( Sun ) time ... the intervals are fixed and linear

DRAW a trendline ( diagonal ) on such a chart and the constant move along the horizontal axis will make the chart cross it by default price does not have to change

Now are all Days equal ?
What matters can happen all at once 

So some modern approaches try to catch this aspect of reality
by trying to make the chart.... non linear

That is the timeframe expands and contracts so as to catch this
all at once ... So you do not blink and miss it.. Or keep watching nothing.

This is what a P&F chart already is and was

it is again a two dimensional chart

price is again on one axis

But this time solar time is not on the horizontal

just because a day passes that trendline will not be crossed.

With a P&F chart what is on the horizontal axis is

price reversal ...

So what changes the columns is price changing direction
So if this change of direction speeds up the chart speeds up
more columns are drawn

So the chart is adaptive 
and non linear in respect to time

The time frame is changing
as the price activity speeds up and down

A 200 day moving average 
is trapped in a time frame

A P&F chart is not

A bar chart is a one dimensional price chart
price is only on one dimension

A P&F chart is a two dimensional price chart
aspects of price movement are on both axis

For the chart to move , price has to move
however the  price moves ,at what ever speed
the chart moves in lock step..

It is a moved base charting technique
drawn by support and resistance.

Howard might know the work of

Bruno Dupire



> It is opportunistic, not dogmatic: it does not favor trend following nor range trading
> per se; it just exploits the data optimally




P&F does away with the problem 
of look back

eg in the P&F relative strength ( in the e-book )

We don't have to adjust the look back period
( stronger over 3 mths or 6mth , 12 mths )

in order to  adjust for changing conditions
eg bear or bull mkts range or trending 

The chart is adjusting itself all the time

Everything that is real is as simple as it can be.
simple is not the same as easy or hard.

With P&F
There is no switching of time frames
or periods

no look back problems

because



> It is opportunistic, not dogmatic: it does not favor trend following nor range trading
> per se; it just exploits the data optimally








motorway


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## Whiskers (21 May 2008)

Kauri said:


> I have always found the 193.7034 MA
> to be a good one...
> until everyone else..
> cottons on to it ...
> ...




Yes kauri!!! 

And I thought I was the only one looking at non standard MA's. 



Motorway, I'm starting to appreciate the benifits of P&F, but how do you get an idea of time from P&F charts... ie like from a trend line or deviation channel with candle charts, one can get a mental picture of the market position in time in relation to the trend.


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## MRC & Co (21 May 2008)

From what I gather, that is the point Whiskers.

Time as we know it, does not matter in P&F.

It is simply the speed at which price moves, so it encapsulates time in that essence......

In this way, it shows momentum.

Then again, I could be completely wrong


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## motorway (21 May 2008)

Whiskers said:


> Yes kauri!!!
> 
> And I thought I was the only one looking at non standard MA's.
> 
> ...




P&F is a chart of structure and flow
movement arises from conditions

Because time is not one of the chart's axis
it is  the reason the chart times..

On this post

https://www.aussiestockforums.com/forums/showthread.php?p=251530

The comments were was there enough "work"
done rather than time elapsed

work is an old term for the sideways movement on the chart 

( ask yourself what is sideways ? it is not time )

So there is a relationship to the amount of sideways movement that occurs ( the work ) to the vertical.

trend continuing to trend reversing

this relationship involves the 45 degree trend
that the charts ( as demand or supply dynamics unfold ) follow .

The chart becoming active or dull--- in fact times

However 

readiness to move can be  seen in this concept of "work"

and techniques involve the proportion that various congestion areas have to each other....( so called stepping stone counts ... when a stepping stone is completed ? )


How do we forecast the weather ?
By identifying the position and structure of high and low pressure systems
and identifying a readiness potential

This from one angle is what P&F is displaying

readiness potentials

Built by the work in the congestion areas ( again sideways is dynamic support and resistance -- not time )

So you are seeing deviations from the trend constant
( 45 degree line of movement which is the line of least resistance )

There are reasons for this

P&F charts are truly fractal.. and there is relationships between
the various traditional reversal amounts ( 1 3 & 5 )..

Best thing is to chart one even by hand ( even better )
try say a 50 point ( true course of trades ) XAO chart

The way it speeds up and down
congests and trends

you will soon find out about Time

And of course 

coordinate with your usual charting

motorway


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## wildkactus (22 May 2008)

Motorway,
Thanks for the run down on P&F Charts, it was good info.
I have looked at these charts and had no idea how to read them.

now the mud has cleared alittle, will look into these a bit more.

Any good books or websites on P&F charts you can recommend.

Thanks again.


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