Moving Average Calculators: what settings?

[elnico50]

Hi

I've been reading up on moving average calculators such as SMA, EMA etc and how they are used to indicate trend reversals.

One question I'm having trouble finding the answer to is: how do you decide the length of time to set them to?

The 'standard' seems to be 10 days for the short term SMA and EMA, and 30 days for the long term.

What would cause a trader to alter these settings? For example, when would these settings not be appropriate?

Thanks!

 

[bonkerrs]

Hope someone answers the question (hint hint!!). I'm also wanting to know the same thing. I guess that you're (OP) as new to MA as I am... actually I'm new to the whole charting scene.

Anyone?!

 

[professor_frink]

There's no such thing as a 'standard' for MA's. There are some that are more common than others, such as the 20,50 and 200 period simple moving averages.

I think you'll be struggling to find one that indicates a trend reversal ahead of time, as that isn't what they do.

As to what length of time to set them to, you'll have to figure that out for yourself. Open up some charts of companies you follow and start experimenting with different kinds of averages and different lengths until you find something you are comfortable with.

 

[Trembling Hand]

There's no such thing as a 'standard' for MA's. There are some that are more common than others, such as the 20,50 and 200 period simple moving averages.

I think you'll be struggling to find one that indicates a trend reversal ahead of time, as that isn't what they do.

As to what length of time to set them to, you'll have to figure that out for yourself. Open up some charts of companies you follow and start experimenting with different kinds of averages and different lengths until you find something you are comfortable with.

Yes agree Professor. Everyone sees a different thing especially when you are talking charting. Like Prof says just experiment, if you are really struggling get some good books and read what they have to say. The trend reversal thing with Moving averages cross over seems to be something that newbies find attractive but I think most people soon find out that’s its not the holy grail they where looking for (but again, everyone sees a different thing)

 

[>Apocalypto<]

Another thing to really think about with MA's, in a sideways market they become rather worthless.

 

[tech/a]

Moving averages are simply an average of periods (not to be confused with days).
A 5 period average on a daily chart represents a week of trading.
A 5 period average on a Weekly chart represents 5 weeks of trading.

M/A's are lagging indicators as they rely (Like all oscillators) on past price action for their calculation.

To answer the question as to which one length to use,I would (If I used them as a trend reversal "Indicator" to first determine the TIMEFRAME of the trend I'm looking for a reversal in.

EG if the trend is well established then I would be using a longer timeframe.
If its only short in length then possibly a shorter timeframe.

 

[tcoates]

You will get different answers from different people. Some people frown against using an SMA (see also http://www.incrediblecharts.com/technical/moving_average_selection.htm) but others would say that it reacts faster than an EMA.

As far as what "numbers" to go with...

1. use tech/a numbers
2. use guppy mma numbers
3. some opt for 4/9/18 periods
4. some opt for 5/15/30
5. some go for 21 days
5. etc.

But the best answer that I could give is that you have a look at the following which offer comparisons (and other ideas)

http://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2002/CCAM/CCAM.htm

and

http://72.14.253.104/search?q=cache...on&hl=en&ct=clnk&cd=15&gl=au&client=firefox-a

Tim

 

[elnico50]

Thanks for the replies. I've since done a bit more reading and see that the period settings you use depend on whether they work for the particular share you're charting and a whole lot of other factors.

I realise ma's are lagging indicators, so they won't indicate trend reversals ahead of the event.

I find the Guppy MMA's interesting.

The more I learn the more I see that questions like the one I posted open up a can of worms.

Thanks again!

 

[CFD]

Unfortunately as you see, a simple question can not be answered so simply.
You did not say what you would be using them for and what time frame is of the charts you will be using them on.

On a weekly chart an 8 period (week) SMA follows many stocks nicely eg BHP.
Try it with, say a, 21 period SMA to see if it helps you follow a trend. Or go with 10 and 30 if you prefer full numbers.

IMHO you use trailing indicators to help see the present trend of the market - up trend, down trend or no trend ie ranging between fairly close support and resistance lines. Never try to predict a change in trend or trade against the trend.