3 MA Crossover Trading

Quote from IIAce:

There's something I must be missing here. Can anyone tell me the logic behind using MA's as entry signals? Everyone realizes the mathematical fact that if a stock is rising every day, its short term MA's will be above its long term ones right?
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I use a 10 day moving average. Buy when the stock is above the moving averages and sell when it is below the moving average. you should also use other indicators along with the moving averages and never rely on just one indicator such as just the MA. Some traders use 20 indicators and that is why they have 16 monitors - so they can watch all the indicators.
http://www.stockcharts.com/education/IndicatorAnalysis/indic_movingAvg.html
 
I read an article in SFO where the author advocated using 3/20/65 SMA's in the FX markets. Problem with using the 65's as confirmation was the wide swings inherent with the longest MA.
While not perfect I have been using 10/20 with hourly charts.

Goodfellow, thanks for your input. Sometimes I need to remind myself that a few simple indicators can work as well as multiple more complex indicators.
 
Why 3 ma's rather than two? Just curious as to the rationale. I've been using a 15 pd. MA on a two minute chart to look for quick scalps on fading sharp movements. Just can't seem to come up with reliable envelope sizes on some stocks that trend a lot.

Also, it is a lot of work moving these orders manually right now, waiting for 1-3 fills per day on a stock.
 
Quote from Miragers:

Any opinions on using MA's instead of EMA's ?
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MA's forget the past price action more abruptly than EMAs. The bar-to-bar change in an n-bar MA is only a function of the most recent bar and the bar n-bar ago. Thus a 17 MA will jump up significantly on the 18th day after a major spike. Some people see that as an undesirable artifact that the MA curve carries a distinct inverse shadow of the price curve at the trailing edge of the MA's window.

In contrast, EMAs slowly forget the past and smoothly change according to recent and past price action. Unlike MAs, EMA's weight the recent past more strongly than that distant past. Unlike MAs, EMAs never totally forget the distant past, but the weight on that old old data does approach zero.

Some argue that EMAs are more like the human minds in the market -- being more influenced by recent events and less by distant events but never entirely forgetting. On the other hand, lots of trading systems use MAs, so if you want to be in sync with other traders, then that might be a way to go.
 
In my experience I like how EMA's seem to smoothly transition from one trend to another. Thats why I use 3, when the stock is trading in a trend they move in waves from one trend to another and when there is no clear trend they remained tangled with each other and keep you out of the market. They kind of look like a MACD hist. On the other hand MA's are usually all over the place if you use 3 and dont show such clear signals, well at least if you use 3 of them for a crossover signal and not one or 2.
 
Quote from goodfellow:

Some traders use 20 indicators and that is why they have 16 monitors - so they can watch all the indicators.
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Are their heads friggin spinning non-stop? Imagine how many indicators are contradicting each other.
 
I think the 3 EMA work better for finding support and resistance points during pullbacks for entry points. For crossovers, they may work better on longer-term charts to avoid the whipsaws that are inevitable.
 
Quote from chiguy:

please define what ma...sma...and ema are...what do the acronyms mean...

sorry if this is too basic of a question...
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MA - Moving Average
SMA - Simple Moving Average
EMA - Exponential Moving Average
 
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