Moving Averages Applied to Long Term Charts
posted under
Philosophy of Technical Analysis
by ceecabolos
The reader should not overlook using this technique in longer range trend analysis. Longer range moving averages, such as 10 or 13 weeks, in conjunction with the 30 or 40 week average, have long been used in stock market analysis, but haven't been given as much attention in the futures markets. The 10 and 40 week moving averages can be used to help track the primary trend on weekly charts for futures and stocks.Some Pros and Cons of the Moving Average
One of the great advantages of using moving averages, and one of the reasons they are so popular as trend-following systems, is that they embody some of the oldest maxims of successful trading. They trade in the direction of the trend. They let profits run and cut losses short. The moving average system forces the user to obey those rules by providing specific buy and sell signals based on those principles.
Because they are trend-following in nature, however, moving averages work best when markets are in a trending period. They perform very poorly when markets get choppy and trade sideways for a period of time. And that might be a third to a half of the time.
The fact that they do not work that well for significant periods of time, however, is one very compelling reason why it is dangerous to rely too heavily on the moving average technique. In certain trending markets, the moving average can't be beat. Just switch the program to automatic. At other times, a nontrending method like the overbought—oversold oscillator is more appropriate. (In Chapter 15, we'll show you an indicator called ADX that tells you when a market is trending and when it is not, and whether the market climate favors a trending moving average technique or a nontrending oscillator approach.)
Moving Averages As Oscillators
One way to construct an oscillator is to compare the difference between two moving averages. The use of two moving averages in the double crossover method, therefore, takes on greater significance and becomes an even more useful technique. We'll see how this is done in Chapter 10. One method compares two exponentially smoothed averages. That method is called Moving Average Convergence/Divergence (MACD). It is used partially as an oscillator. Therefore, we'll postpone our explanation of that technique until we deal with the entire subject of oscillators in Chapter 10.
Some Pros and Cons of the Moving Average
One of the great advantages of using moving averages, and one of the reasons they are so popular as trend-following systems, is that they embody some of the oldest maxims of successful trading. They trade in the direction of the trend. They let profits run and cut losses short. The moving average system forces the user to obey those rules by providing specific buy and sell signals based on those principles.
Because they are trend-following in nature, however, moving averages work best when markets are in a trending period. They perform very poorly when markets get choppy and trade sideways for a period of time. And that might be a third to a half of the time.
The fact that they do not work that well for significant periods of time, however, is one very compelling reason why it is dangerous to rely too heavily on the moving average technique. In certain trending markets, the moving average can't be beat. Just switch the program to automatic. At other times, a nontrending method like the overbought–oversold oscillator is more appropriate. (In Chapter 15, we'll show you an indicator called ADX that tells you when a market is trending and when it is not, and whether the market climate favors a trending moving average technique or a nontrending oscillator approach.)
Moving Averages As Oscillators
One way to construct an oscillator is to compare the difference between two moving averages. The use of two moving averages in the double crossover method, therefore, takes on greater significance and becomes an even more useful technique. We'll see how this is done in Chapter 10. One method compares two exponentially smoothed averages. That method is called Moving Average Convergence/Divergence (MACD). It is used partially as an oscillator. Therefore, we'll postpone our explanation of that technique until we deal with the entire subject of oscillators in Chapter 10.
Some Pros and Cons of the Moving Average
One of the great advantages of using moving averages, and one of the reasons they are so popular as trend-following systems, is that they embody some of the oldest maxims of successful trading. They trade in the direction of the trend. They let profits run and cut losses short. The moving average system forces the user to obey those rules by providing specific buy and sell signals based on those principles.
Because they are trend-following in nature, however, moving averages work best when markets are in a trending period. They perform very poorly when markets get choppy and trade sideways for a period of time. And that might be a third to a half of the time.
The fact that they do not work that well for significant periods of time, however, is one very compelling reason why it is dangerous to rely too heavily on the moving average technique. In certain trending markets, the moving average can't be beat. Just switch the program to automatic. At other times, a nontrending method like the overbought–oversold oscillator is more appropriate. (In Chapter 15, we'll show you an indicator called ADX that tells you when a market is trending and when it is not, and whether the market climate favors a trending moving average technique or a nontrending oscillator approach.)
Moving Averages As Oscillators
One way to construct an oscillator is to compare the difference between two moving averages. The use of two moving averages in the double crossover method, therefore, takes on greater significance and becomes an even more useful technique. We'll see how this is done in Chapter 10. One method compares two exponentially smoothed averages. That method is called Moving Average Convergence/Divergence (MACD). It is used partially as an oscillator. Therefore, we'll postpone our explanation of that technique until we deal with the entire subject of oscillators in Chapter 10.
The Moving Average Applied to Other Technical Data
The moving average can be applied to virtually any technical data or indicator. It can be used on open interest and volume figures, including on balance volume. The moving average can be used on various indicators and ratios. It can be applied to oscillators as well.
One of the great advantages of using moving averages, and one of the reasons they are so popular as trend-following systems, is that they embody some of the oldest maxims of successful trading. They trade in the direction of the trend. They let profits run and cut losses short. The moving average system forces the user to obey those rules by providing specific buy and sell signals based on those principles.
Because they are trend-following in nature, however, moving averages work best when markets are in a trending period. They perform very poorly when markets get choppy and trade sideways for a period of time. And that might be a third to a half of the time.
The fact that they do not work that well for significant periods of time, however, is one very compelling reason why it is dangerous to rely too heavily on the moving average technique. In certain trending markets, the moving average can't be beat. Just switch the program to automatic. At other times, a nontrending method like the overbought—oversold oscillator is more appropriate. (In Chapter 15, we'll show you an indicator called ADX that tells you when a market is trending and when it is not, and whether the market climate favors a trending moving average technique or a nontrending oscillator approach.)
Moving Averages As Oscillators
One way to construct an oscillator is to compare the difference between two moving averages. The use of two moving averages in the double crossover method, therefore, takes on greater significance and becomes an even more useful technique. We'll see how this is done in Chapter 10. One method compares two exponentially smoothed averages. That method is called Moving Average Convergence/Divergence (MACD). It is used partially as an oscillator. Therefore, we'll postpone our explanation of that technique until we deal with the entire subject of oscillators in Chapter 10.
Some Pros and Cons of the Moving Average
One of the great advantages of using moving averages, and one of the reasons they are so popular as trend-following systems, is that they embody some of the oldest maxims of successful trading. They trade in the direction of the trend. They let profits run and cut losses short. The moving average system forces the user to obey those rules by providing specific buy and sell signals based on those principles.
Because they are trend-following in nature, however, moving averages work best when markets are in a trending period. They perform very poorly when markets get choppy and trade sideways for a period of time. And that might be a third to a half of the time.
The fact that they do not work that well for significant periods of time, however, is one very compelling reason why it is dangerous to rely too heavily on the moving average technique. In certain trending markets, the moving average can't be beat. Just switch the program to automatic. At other times, a nontrending method like the overbought–oversold oscillator is more appropriate. (In Chapter 15, we'll show you an indicator called ADX that tells you when a market is trending and when it is not, and whether the market climate favors a trending moving average technique or a nontrending oscillator approach.)
Moving Averages As Oscillators
One way to construct an oscillator is to compare the difference between two moving averages. The use of two moving averages in the double crossover method, therefore, takes on greater significance and becomes an even more useful technique. We'll see how this is done in Chapter 10. One method compares two exponentially smoothed averages. That method is called Moving Average Convergence/Divergence (MACD). It is used partially as an oscillator. Therefore, we'll postpone our explanation of that technique until we deal with the entire subject of oscillators in Chapter 10.
Some Pros and Cons of the Moving Average
One of the great advantages of using moving averages, and one of the reasons they are so popular as trend-following systems, is that they embody some of the oldest maxims of successful trading. They trade in the direction of the trend. They let profits run and cut losses short. The moving average system forces the user to obey those rules by providing specific buy and sell signals based on those principles.
Because they are trend-following in nature, however, moving averages work best when markets are in a trending period. They perform very poorly when markets get choppy and trade sideways for a period of time. And that might be a third to a half of the time.
The fact that they do not work that well for significant periods of time, however, is one very compelling reason why it is dangerous to rely too heavily on the moving average technique. In certain trending markets, the moving average can't be beat. Just switch the program to automatic. At other times, a nontrending method like the overbought–oversold oscillator is more appropriate. (In Chapter 15, we'll show you an indicator called ADX that tells you when a market is trending and when it is not, and whether the market climate favors a trending moving average technique or a nontrending oscillator approach.)
Moving Averages As Oscillators
One way to construct an oscillator is to compare the difference between two moving averages. The use of two moving averages in the double crossover method, therefore, takes on greater significance and becomes an even more useful technique. We'll see how this is done in Chapter 10. One method compares two exponentially smoothed averages. That method is called Moving Average Convergence/Divergence (MACD). It is used partially as an oscillator. Therefore, we'll postpone our explanation of that technique until we deal with the entire subject of oscillators in Chapter 10.
The Moving Average Applied to Other Technical Data
The moving average can be applied to virtually any technical data or indicator. It can be used on open interest and volume figures, including on balance volume. The moving average can be used on various indicators and ratios. It can be applied to oscillators as well.
Comment Form under post in blogger/blogspot