Moving Average Period - Preferences?

[cudderbean]

Hi
I use a variety of MA periods when looking at basic charts.
What I have been tending to do is use a simple 2-line MA200 if looking at a 1-5 year chart; but both a 30 and 200 MA if looking at 1-2 month chart.
A question however: If I am looking at a SP over a relatively short period, say 1-2 months, is there a "preferable" MA setting? ie: Which is associated with greater significance? eg: As to when the MA is crossed by the SP?
Thanks
Rick

I use EMAs simply to tell me the direction of a trend. For the trend itself I draw a trendline.

I like 5, 8, 21, 125, and 150 EMAs respectively for very short term to long term trends.

For me its the direction of the EMA that counts, not whether the price is above or below it. Although when short term EMAs cross above or below longer term EMAs it might give you warning of a trend reversal.... worth keeping an eye on, but I don't use those crossover moments as buy or sell signals.

I also like EMAs because they are not only more sensitive than SMAs but also much simpler to calculate in Excel which I use to constantly scan the market live data.

If yesterday's 5 EMA was higher than the day before's 5EMA then the SHORT term trend was up yesterday. If today I am alerted that my automatically generated short term UP trend LINE has been broken by the price action, then go and eyeball the daily, weekly and intraday charts, course of sales, support/resistance levels and volume to see if anything serious enough is happening to warrant a buy or sell.

Good luck, mate.

 

[pavilion103]

I am assuming that the moving average used should have something to do with the length that someone intends to hold a trade?

For example if I am looking to hold a position for between 5-30 days, then a 30 day MA might be best?
If I am looking to hold a position for a few months then a 200 day MA might be best?

I am thinking of setting my moving average to the maximum number of days I intend to hold a trade e.g. 30 days. There may be a very few that I happen to hold for longer but it would be the exception rather than the rule.

 

[tech/a]

Its wise to remember exactly what an M/A is.
An average (various ways of calculation) of past data.
so by the time you see anything meaningful in any time frame--- relative to that time frame--- the bulk of the action HAS TO HAVE occurred.
so its usefulness going forward in ANY TIME FRAME is --in my view---questionable.

Generally the Fat lady has sung and is on her way back to her motel!

 

[pavilion103]

Its wise to remember exactly what an M/A is.
An average (various ways of calculation) of past data.
so by the time you see anything meaningful in any time frame--- relative to that time frame--- the bulk of the action HAS TO HAVE occurred.
so its usefulness going forward in ANY TIME FRAME is --in my view---questionable.

Generally the Fat lady has sung and is on her way back to her motel!

Exactly what I was thinking just after I posted that. It's not like the MA is predictive in any way.
Having just read Curtis Arnold's PPS Trading System he uses a trend filter including use of both the 18-day and 40-day MA. It seems a bit much for me.

I think I'll leave the 40-day MA on my chart for now as a general guide of the trend. I've found that it has helped me.

 

[Frankie]

When using moving averages I prefer to apply them to trending stocks (not stocks moving sideways).

I’ve experimented using 1 moving average, 2 moving averages and multiple moving averages for my buy and sell signals.

I’d like to briefly touch upon my use of 2 moving averages for now.

I have been told by others in the past that the 10 and 30 day moving average cross over signal is very popular for entry/exit signals. However, when I apply it stocks on my watchlist the signals may be either too lagged or too soon depending on the stock I’m analysing.

By starting with the 10 and 30 day moving averages, but then tweaking each one either up or down in time frame, I try to eliminate lag or early entry signals.

Adjusting the moving averages based on the actual trend gives me a better guide as to the moving averages I will use for my crossover signal.

 

[Mistagear]

Exactly what I was thinking just after I posted that. It's not like the MA is predictive in any way.
Having just read Curtis Arnold's PPS Trading System he uses a trend filter including use of both the 18-day and 40-day MA. It seems a bit much for me.

I think I'll leave the 40-day MA on my chart for now as a general guide of the trend. I've found that it has helped me.

My preferred MA is none, nothing, nadda. and my other preference is use no other indicators on my charts.
If I'm looking at a chart I dont want a lagging indicator distracting me from the most recent information available, information as close as possible to the next move into the future.
Reading price action is a simple art which gives a trader, the most up to date,most relevant, least lagging information available.

The other thing with indicators which has me wondering is, TA packages have been heavily promoted for decades by Industry heavyweights with unlimited funds, who are now using state of the art Algo' Trading systems. My thought is, how easy would it now be, to know what % reaction occurs if price were pushed to different prescribed levels, say divergence in an indicator or a MA cross etc.

In conclusion, I think there is far greater benefit to be gained by the individual trader by NOT going down the technical indicator pathway to the nearest finance industry corral.
Personal paranoid opinion only
Cheers, M

 

[pavilion103]

My preferred MA is none, nothing, nadda. and my other preference is use no other indicators on my charts.
If I'm looking at a chart I dont want a lagging indicator distracting me from the most recent information available, information as close as possible to the next move into the future.
Reading price action is a simple art which gives a trader, the most up to date,most relevant, least lagging information available.

The other thing with indicators which has me wondering is, TA packages have been heavily promoted for decades by Industry heavyweights with unlimited funds, who are now using state of the art Algo' Trading systems. My thought is, how easy would it now be, to know what % reaction occurs if price were pushed to different prescribed levels, say divergence in an indicator or a MA cross etc.

In conclusion, I think there is far greater benefit to be gained by the individual trader by NOT going down the technical indicator pathway to the nearest finance industry corral.
Personal paranoid opinion only
Cheers, M

Thanks for that.

I am mainly using VSA and am trying to use price and volume as much as possible to make my decisions. I do feel that other indicators do distract me at times. I just need to practice reading price and volume action more and more I think.

 

[tech/a]

Interesting comments.

Reading Price action is "technical analysis" also in my view.
I think though that the REAL reason for the question of M/A usage is one of identifying trends.
This is in itself the biggest question a trader faces.

Is a trend beginning/pausing/continuing/stopping?

How can I DEFINITIVELY know this at THE TIME its happening.

This should be treated as a topic in its own right so I have started a thread on it.
I wont have time to post up some example and discussion before the Weekend but thought there maybe others who would like to post their thoughts before hand.

See separate thread.

 

[tinhat]

I'm a "value investor" not a trader but I use MAs to look at trend and sentiment and time buys.

I started using Guppy multiple moving averages but after reading Stan Weinstein's 'Secrets For Profiting in Bull and Bear Markets' and Alan Hull's 'Active Investing', I mainly look at weekly charts using 50, 30 and 10 period MAs. I also have Bollinger bands on my chart which uses the 20 MA as the central cord

I do find the 30 MA quite useful in a lot of ways. Referring to weekly charts:

If price drops below the 30w MA is this is a bearish signal.

I look to see if the 30w MA is trending up and whether the XAO 30w MA is also trending up before buying. I broke that rule and bought a few stocks in June so we will see if that was a mistake or not. The problem with a sideways market is that last year the XAO 30w MA did not start trending up until December and had already retraced 50% of its losses from the April correction.

I also use the 30w MA as one of several methods I have for setting trailing stop-losses.

I know that Lance Lai (of switzer.com) uses the 10day, 30day MA and looks for the "golden cross" of when the 10day MA breaks below the 30day MA as a bearish signal.

 

[cynic]

My preferred MA is none, nothing, nadda.

Yes! I came to a similar conclusion after considering MA's (and MMA's) during my early days. I very quickly discarded them after identifying that they were not appropriate for my preferred trading style.

In conclusion, I think there is far greater benefit to be gained by the individual trader by NOT going down the technical indicator pathway to the nearest finance industry corral.
Personal paranoid opinion only

Not paranoid at all! All is fair in profiteering within stockmarkets, just ask ASIC!

As I often tell people when they accuse me of paranoia: "It's not that I'm paranoid, it's just that everybody really is out to get me!"

 

[pixel]

fwiw and : I don't take notice of long-period MAs, mainly because they're lagging by around half the applied period. So if you take 30weeks, you react to something that happened a Quarter ago.
I do use MAs, however, to smooth out jitters between neighbouring "ticks". By that I mean, if I use a daily chart, I apply a 3-day EMA simply to eliminate "one-day wonders".

In any case, these short-term smoothed price charts are only a limited part of my analysis; volume and risk assessment are more important to me.

 

[colion]

fwiw and : I don't take notice of long-period MAs, mainly because they're lagging by around half the applied period. So if you take 30weeks, you react to something that happened a Quarter ago.
I do use MAs, however, to smooth out jitters between neighbouring "ticks". By that I mean, if I use a daily chart, I apply a 3-day EMA simply to eliminate "one-day wonders".

In any case, these short-term smoothed price charts are only a limited part of my analysis; volume and risk assessment are more important to me.

Along the same lines short MA/EMA are useful signal lines for indicators.