Appropriate use of Simple Moving Average?

[scotta65]

What are the pros & cons of using different lengths of SMA's? For example, would a long term trader be more inclined to use a 200 day SMA? Would a short-term flipper find a 7 - day SMA the most useful? Would someone who trades monthly options best be served with a 30 day SMA? Or would any trader utilize a combination of different lengths?

Sorry if these are stupid questions, I am really inexperienced with SMA's and want to learn more about them

 

[daniel33]

Loaded question, trading can be simple, but not that simple.

 

[FrankSlaughtery]

sma's are useful for me in setting stops. the only indicators i have on my charts are the 20, 50 and 200. for example, if i see a stock rose up to its falling 50 dma i'll short it w/ a tight stop (1 or 2 atr). and most times when the stock blows past my stop it keeps going. like the phrase from failed moves come fast moves.

obviously moving averages mean nothing in sideways markets. if i see a stock stuck in a range i won't even look at the sma's b/c price doesn't respect them. there are plenty of other stocks that are trending either up or down to trade.

re exponential or simple sma's, in my experience it really doesn't matter which you use.

lastly, never try to optimize your sma setting. for example, don't look at one setup that worked perfectly using a combination of the 4, 17 and 89 period sma. i only use the 20, 50 and 200 b/c they are the standard ones.

oh, one more thing, institutions love to buy on pullbacks to the 50 sma. but after price drops below watch out. for example, aapl closed below the 50 sma on 10/5/12 at 652. it then fell to 505 in less than a month and a half and never going above the 20 sma during this period.

 

[optionbull]

Quote from FrankSlaughtery:

sma's are useful for me in setting stops. the only indicators i have on my charts are the 20, 50 and 200. for example, if i see a stock rose up to its falling 50 dma i'll short it w/ a tight stop (1 or 2 atr). and most times when the stock blows past my stop it keeps going. like the phrase from failed moves come fast moves.

obviously moving averages mean nothing in sideways markets. if i see a stock stuck in a range i won't even look at the sma's b/c price doesn't respect them. there are plenty of other stocks that are trending either up or down to trade.

re exponential or simple sma's, in my experience it really doesn't matter which you use.

lastly, never try to optimize your sma setting. for example, don't look at one setup that worked perfectly using a combination of the 4, 17 and 89 period sma. i only use the 20, 50 and 200 b/c they are the standard ones.

oh, one more thing, institutions love to buy on pullbacks to the 50 sma. but after price drops below watch out. for example, aapl closed below the 50 sma on 10/5/12 at 652. it then fell to 505 in less than a month and a half and never going above the 20 sma during this period.

Hi- what do you use or do you consider direction of trend before placing trade ? ADX for example ?

 

[oldtime]

for short term trading, like a couple of minutes to a couple of hours, a suggestion is to use the 200dma and the 50dma

if it the 50 is over the 200, only scalp from the long side and visa versa

I've seen this work on NQ and beat the heck out of scalpers trading both sides all day long

but most good traders don't actually use an MA (or anyothere indicator for that matter) but they become experts in observing them.

cross over traders go long when the short cross above the long, and short when the short crosses below the long. It is a good way to get chopped to death.

A typical day trader would use the 5 min over the 17 minute

works great in a strong trend, but most trends fizzel out

 

[optionbull]

Quote from oldtime:

for short term trading, like a couple of minutes to a couple of hours, a suggestion is to use the 200dma and the 50dma

if it the 50 is over the 200, only scalp from the long side and visa versa

I've seen this work on NQ and beat the heck out of scalpers trading both sides all day long

but most good traders don't actually use an MA (or anyothere indicator for that matter) but they become experts in observing them.

cross over traders go long when the short cross above the long, and short when the short crosses below the long. It is a good way to get chopped to death.

A typical day trader would use the 5 min over the 17 minute

works great in a strong trend, but most trends fizzel out

Thanks oldtime, any suggestion for longer dated trend, maybe just extend the SMA ?

I hear you regarding the scalpers, I am not all that interested in that, more about mid term dated trades, like days to week or so mx. Have a certain means to view market however I would like a decent trend filter

 

[oldtime]

Quote from optionbull:

Thanks oldtime, any suggestion for longer dated trend, maybe just extend the SMA ?

I hear you regarding the scalpers, I am not all that interested in that, more about mid term dated trades, like days to week or so mx. Have a certain means to view market however I would like a decent trend filter

Frank gave some good advice. I would agree with everything he said. Sometimes these are what they call "self fulfilling indicators" in that a lot of people watch the same thing and start acting when they get hit. So you will often hear stock traders talk about a stock when it approaches it's 50 day ma.

 

[optionbull]

Quote from oldtime:

Frank gave some good advice. I would agree with everything he said. Sometimes these are what they call "self fulfilling indicators" in that a lot of people watch the same thing and start acting when they get hit. So you will often hear stock traders talk about a stock when it approaches it's 50 day ma.

Thnx, will look at that

 

[murray t turtle]

Quote from FrankSlaughtery:

sma's are useful for me in setting stops. the only indicators i have on my charts are the 20, 50 and 200. for example, if i see a stock rose up to its falling 50 dma i'll short it w/ a tight stop (1 or 2 atr). and most times when the stock blows past my stop it keeps going. like the phrase from failed moves come fast moves.

obviously moving averages mean nothing in sideways markets. if i see a stock stuck in a range i won't even look at the sma's b/c price doesn't respect them. there are plenty of other stocks that are trending either up or down to trade.

re exponential or simple sma's, in my experience it really doesn't matter which you use.

lastly, never try to optimize your sma setting. for example, don't look at one setup that worked perfectly using a combination of the 4, 17 and 89 period sma. i only use the 20, 50 and 200 b/c they are the standard ones.

oh, one more thing, institutions love to buy on pullbacks to the 50 sma. but after price drops below watch out. for example, aapl closed below the 50 sma on 10/5/12 at 652. it then fell to 505 in less than a month and a half and never going above the 20 sma during this period.

==============
200dma is real useful. IBD [Investors Business Daily] puts it on all charts;
its real useful for another reason also . Months of price close below 200dma can mean a bear /downtrend market. months above can mean a bull/uptrend.

If one learns that the hard way;
its always REMEMBERED .LOL

 

[optionbull]

Quote from murray t turtle:

==============
200dma is real useful. IBD [Investors Business Daily] puts it on all charts;
its real useful for another reason also . Months of price close below 200dma can mean a bear /downtrend market. months above can mean a bull/uptrend.

If one learns that the hard way;
its always REMEMBERED .LOL

excellent thnx