For newbies: Moving averages as in indicator.

[Bad_Badness]

From my experience, observations, the following are how MAs are interpreted:

1. Newbs who just read a book or 2 on "how to make money trading...": They think buying/selling when prices cross MA will be good enough to quit their day jobs and make money, as long as they find the magic parameters.

2. Trading "Educators": "MAs are only useful if you use a shitload of them," e.g. have at least 6 of them so that you can create a kickass backtest curve to entice the above mentioned newbs into paying subscription fees.

3. Quants with PhD's, and maybe a year or 2 of losses: MAs alone are useless, the KEY is their slopes! Also, backtesting MA "strategies" is only useful if you optimize with "machine learning".

4. From the few seasoned traders I know, something I agree with: MAs are an OK, rough method for quantitative risk management. E.g. if you're bullish something, you could reduce exposure if it drops below MA, and put-it-back-on if it crosses back above. This way you reduce your chance of significant draw-downs, while minimizing opportunity cost.

On 1) Any MA can be made so it "crosses over", so that tell you it is relative. So therefore the notion of "crossing" is arbitrary, group thinking aside.

On 2) Back testing sucks with MAs because the reality of real time, intra-bar painting is never captured. Plus the obvious curve fitting to static data.

On 3) First and second derivative are relevant. If one does not know what that means they don't understand MA's represent beyond the MA part.

On 4) These people are not Newbies, and details of such a discussion is beyond the scope.

 

[jnbadger]

Many years ago, I ran a little experiment with coin flipping and a 20 period moving average while watching a movie. (No, I didn't have much of a life) I flipped it 1000 times and put the results on graph paper. I was amazed at how many times the graph precisely bounced off of the MA from 1000 random coin tosses. I was just curious and I don't use them. Just my 1 1/2 cents.

 

[murray t turtle]

Many years ago, I ran a little experiment with coin flipping and a 20 period moving average while watching a movie. (No, I didn't have much of a life) I flipped it 1000 times and put the results on graph paper. I was amazed at how many times the graph precisely bounced off of the MA from 1000 random coin tosses. I was just curious and I don't use them. Just my 1 1/2 cents.

%%
A badger has dark fur around his eyes\ = natural sunglasses..NOT a prediction /a 200 day moving average can be 10 times better, so much less slippage.
An interstate \hi speed hi-way can work real well , but i seldom try to use them @ rush hour...............................................................................Good post, more educational than most movies.

 

[jnbadger]

%%
A badger has dark fur around his eyes\ = natural sunglasses..NOT a prediction /a 200 day moving average can be 10 times better, so much less slippage.
An interstate \hi speed hi-way can work real well , but i seldom try to use them @ rush hour...............................................................................Good post, more educational than most movies.

Have we been drinking? But thank you.

 

[murray t turtle]

Have we been drinking? But thank you.

%%
YES;
about 8 cups[with handles/LOL] of water. And Minute Maid 100% fruit Juice

 

[deepfkvalue]

The MA question comes up pretty often. So one has to ask, what exactly are people looking to INDICATE. Seriously, this is such a basic question but gets skipped almost every time by the newbies.

Newbies think some aspect* of a MA will, for instance,

• INDICATE a time to buy or sell.
• INDICATE a change of direction

* MA penetrating, or combinations of MA crossing over, etc.

So they fiddle with the parameters, time frames, sampling, smoothing etc. Then these things don't work reliably enough (<70%), then say they don't work or think they need to adjust the parameters or maybe use some more complex derivatives such as MACD. Looking for the secret sauce, the right alchemy.

So I will throw this out, what if your basic assumption on what they indicate is wrong.

One does not go into a fast food restaurant looking for a high end steak or fish. No matter what you order, or how many modifications you make to your order, you will not get it.

PS: It is almost as if newbies want to jump to the conclusion with INDICATORS, they just want them, to tell them when to buy and sell.

Who exactly is this post for or what made you post it? Are you trying to convince yourself?

If you're looking for an indicator to tell you when to buy, a buy the fucking dip indicator should do it, although it doesn't work quite as well during sideways markets but as long as you can keep holding and have income from other sources to keep buying the dips, you can't lose.

 

[Kagisopeter]

For newbies, use an invisible indicator as an indicator.

Better to start trading with the mind free from contamination from
the indicators.

the market moves in various shapes/sizes/forms/speed ....
There is no such thing as one-size-fits-all MA thing.

For newbies, use an invisible indicator as an indicator.

Better to start trading with the mind free from contamination from
the indicators.

the market moves in various shapes/sizes/forms/speed ....
There is no such thing as one-size-fits-all MA thing.

I think using the right indicator with a profitable strategy can do no harm. The chances are you end up making more profits, right?

 

[Williamharvard]

For a beginner, indicators can be a bit tricky. You’re right with the invisible indicator thing. I started using them after a long time of trading and now I even have some favourites.

 

[Kagisopeter]

For a beginner, indicators can be a bit tricky. You’re right with the invisible indicator thing. I started using them after a long time of trading and now I even have some favourites.

Newbies can always learn to use and practice a strategy with indicators. Anyway, what all indicators do you use?

 

[Williamharvard]

Newbies can always learn to use and practice a strategy with indicators. Anyway, what all indicators do you use?

I prefer relative strength index, moving average, MACD, etc. I've been using some low spread brokers like XM and Fxview to go with my strategies and indicators.