Appropriate use of Simple Moving Average?

[jack hershey]

Scotta:

You may want to read some history with respect to using averages.

Very long ago, the first TA guys worked with averages to create "signal generators". Their names are legendary today.

The advent of the PC required that their original defaults be adjusted.

As an example Pring took four years to convert from the original to the post PC defaults.

Since no one has mentioned it to you, do not use lagging "signals" from any indicator.

The altenative to "lagging" signals are:

1. timely signals (that occur in the Present), or

2. leading signals.

Give thought to the fact that the market does not generate continuous functions. When you look at the data points you are considering generating, notice that NONE of these values occur in any market variable. That is to say you work will always be crude and never precise.

At some point, then, you may recognize that you have not chosen a type of mathamatics that the market is dictating to you. If you try, you can figure out that the market is never wrong. One thing the market is telling you (in many ways) is that you are uisng the incorrect type of mathematics).

What did these oldtimers do who created the signal generators. they made their mathematics "independent" of the mathematics of markets. They "sychronized" their independent signal generators with the markets as well.

Time is not a variable in the operation of the market.

 

[optionbull]

Quote from jack hershey:

Scotta:

You may want to read some history with respect to using averages.

Very long ago, the first TA guys worked with averages to create "signal generators". Their names are legendary today.

The advent of the PC required that their original defaults be adjusted.

As an example Pring took four years to convert from the original to the post PC defaults.

Since no one has mentioned it to you, do not use lagging "signals" from any indicator.

The altenative to "lagging" signals are:

1. timely signals (that occur in the Present), or

2. leading signals.

Give thought to the fact that the market does not generate continuous functions. When you look at the data points you are considering generating, notice that NONE of these values occur in any market variable. That is to say you work will always be crude and never precise.

At some point, then, you may recognize that you have not chosen a type of mathamatics that the market is dictating to you. If you try, you can figure out that the market is never wrong. One thing the market is telling you (in many ways) is that you are uisng the incorrect type of mathematics).

What did these oldtimers do who created the signal generators. they made their mathematics "independent" of the mathematics of markets. They "sychronized" their independent signal generators with the markets as well.

Time is not a variable in the operation of the market.

Copper March is 3.75

Where will it be tmmrw at 10:00 am EST and where will it close exactly.

Do you get paid to post ?

 

[kut2k2]

Quote from 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

Pro: moving averages are lowpass filters, which means they reduce the high-frequency components of price series to allow a better assessment of price action.

Cons: moving averages add lag, which means they aren't as timely as raw price. Also basic MAs like SMAs tend to attenuate the low-frequency components as well as the hf components,, so there is some signal loss.

FYI: the lag of an n-day SMA is (n-1)/2; the lag of an n-day WMA is (n-1)/3.

 

[oldtime]

Quote from kut2k2:

Pro: moving averages are lowpass filters, which means they reduce the high-frequency components of price series to allow a better assessment of price action.

Cons: moving averages add lag, which means they aren't as timely as raw price. Also basic MAs like SMAs tend to attenuate the low-frequency components as well as the hf components,, so there is some signal loss.

FYI: the lag of an n-day SMA is (n-1)/2; the lag of an n-day WMA is (n-1)/3.

maybe so, but at times, the human mind, which is the greatest super computer in the world, can also be a lagging indicator, especially when it is tired and under stress.

so they set up these moving averages.

So you could make up your mind, before it actually registered and made sense

after a while, if you watch the same thing day after day, tick by tick, you don't don't need anything, because you already know in your mind how it will look.

But you are not always trading against the indicators

you are trading against people

and it can be beneficial to know what they are trading on

and that is where TA in the last 50 years got lost

it was originally an indicator of people and what they would probably do

now it aint nuthin but a bunch of nerds and geeks that can't relate to their fellow man

even if it gets down to my hft algorithm against yours

the winner will be the guy that understands his opponent and what he will probably do

 

[kut2k2]

Quote from oldtime:

maybe so, but at times, the human mind, which is the greatest super computer in the world, can also be a lagging indicator, especially when it is tired and under stress.

so they set up these moving averages.

So you could make up your mind, before it actually registered and made sense

after a while, if you watch the same thing day after day, tick by tick, you don't don't need anything, because you already know in your mind how it will look.

But you are not always trading against the indicators

you are trading against people

and it can be beneficial to know what they are trading on

and that is where TA in the last 50 years got los

it was originally an indicator of people and what they would probably do

now it aint nuthin but a bunch of nerds and geeks that can't relate to their fellow man

even if it gets down to my hft algorithm against yours

the winner will be the guy that understands his opponent and what he will probably do

You're completely overcomplicating trading. Thinking of it solely as a competition is very misleading. Comparisons to chess or poker are completely off the mark. Yes, in the abstract, you are competing against every other trader but in fact, each of your transactions may never happen again. The trade you had yesterday against trader B may never occur again because you and he are trading in different time frames and you were hedging while he was making a directional trade and who knows what other factors may keep your paths from ever crossing again.

All you know is what's happening in the aggregate (price series and volume series), and by definition aggregates can't be broken down into individual traders in the markets. Trading against an aggregate doesn't require game theory and all the other overthought nonsense the quants obsess over, it just requires understanding how to analyze the aggregate. IOW trading is a statistical issue, not a psychological or sociological issue.

 

[oldtime]

Quote from kut2k2:

You're completely overcomplicating trading. Thinking of it solely as a competition is very misleading. Comparisons to chess or poker are completely off the mark. Yes, in the abstract, you are competing against every other trader but in fact, each of your transactions may never happen again. The trade you had yesterday against trader B may never occur again because you and he are trading in different time frames and you are hedging while he was making a directional trade and who knows what other factors may keep your paths from ever crossing again.

All you know is what's happening in the aggregate (price series and volume series), and by definition aggregates can't be broken down into individual traders in the markets. Trading against an aggregate doesn't require game theory and all the other overthought nonsense the quants obsess over, it just requires understanding how to analyze the aggregate. IOW trading is a statistical issue, not a psychological or sociological issue.

oh for crying out loud

I was just trying to explain it in human terms

that is the problem with you guys

you have gotten so far away from people

you don't even know what you are talking about anymore

you are talking about what numbers will probably do

I am talking about what people will probably do

most people will probably do what the numbers say they will do

 

[kut2k2]

Quote from oldtime:

oh for crying out loud

I was just trying to explain it in human terms

that is the problem with you guys

you have gotten so far away from people

you don't even know what you are talking about anymore

you are talking about what numbers will probably do

I am talking about what people will probably do

most people will probably do what the numbers say they will do

Then what is your issue?

If analyzing the numbers will tell you what the people are doing, looks to me like you're making a problem out of nothing. There's nothing technicians are doing today that they weren't doing in principle a century ago. Same same.

 

[Fractals 'R Us]

Ben Stein has a book out for a long time. It's for buy and holders and it uses the 200 week sma. For managing a retirement account he describes a gem of a simple idea.

I've looked at trying to catch trades when price was below a rising average or above a falling average.. not worth a lot to me but some swear by it...

 

[daniel33]

Quote from kut2k2:



Cons: moving averages add lag

This is somewhat misleading as in some cases MAs may have predictive value which is the opposite of lagging.

 

[kut2k2]

Quote from daniel33:

This is somewhat misleading as in some cases MAs may have predictive value which is the opposite of lagging.

All moving averages lag.