How do you use moving averages ..

G

Gary Fox

I just did a search of moving averages, and while I found a number of past threads on the subject, none of them dealt specifically with how traders used them in their scan, setup or entry.

So, if you use moving averages (simple, ema etc) as part of your set-up/entry system, I would enjoy and appreciate reading how you go about that. (I don’t care what your time frame is, as I will enjoy the insight.)

I guess I’m most curious if you a) use more than one ma, b) use simple or ema, c) watch for crossovers, d) require rising or falling slopes, e) measure the slope, f) want price above or below – or don’t care, g) use ma’s as a filtering tool, or anything else.

I’m currently going through John Hill’s book “The Ultimate Trading Guide” and starting at the beginning with “The Big Picture” -- which is the basic chart with just price and volume. I am just flipping through thousands of charts with various zoom ranges and time frames, looking for congestion (accumulation or distribution) run ups (up thrusts) run downs (down thrusts), buying and selling climaxes and so on. I am enjoying it and learning a bit to boot. Hill contends that markets are in congestion approximately 85% of the time, and I’m finding that’s about right.

I believe, at this point anyway, that a moving average or two might be beneficial with just price and volume.

Anyway, thanks in advance for your input.

Gary
 
Moving averages are bad. You'll be confronted with having to decide which combination of averages to use and the time-frame of each. There's never an optiomal combination. False breakouts and the urge to guess/forecast what will happen next will come about. By definition, moving averages work "well" in a trending market. Concentrate more on identifying the strongest trending markets and trade in the direction of their trend instead of using moving averages as a lagging confirmation of something that should be very obvious.
 
I rely on EMA together with Stoch and CCI for entry and exit trading Index futures with 60 min. charts.

I use a EMA10, CCI15 and Stoch 7,14,3. If CCI and Stoch are signaling a change in trend I wait for price to cross EMA10 and then enter after havin consulted a 5 min chart.

On the side I also use MACDhistogram 12,26,9 but this is not very reliable.

Happy trading, Felix
 
Quote from nazzdack:

Moving averages are bad. You'll be confronted with having to decide which combination of averages to use and the time-frame of each. There's never an optiomal combination. False breakouts and the urge to guess/forecast what will happen next will come about. By definition, moving averages work "well" in a trending market. Concentrate more on identifying the strongest trending markets and trade in the direction of their trend instead of using moving averages as a lagging confirmation of something that should be very obvious.
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Erudite and practical as always.
But your always going to be confronted with false breakouts, regardless of style or method. And there is never an optimal combination for anything, unless you live in backtesting /optimisation world, right?
And if you happen to use a short time frame MA for entry, its unlikely to lag that much surely.
As for sideways markets, again, using a short time frame ma as an entry isn't right out of left field, coupled with solid divergence.
 
Hello, Gary, the moving averages are very useful IMHO. But they get the bad rap due to their misusage by many traders. You can find good examples of proper usage of MAs on both CME website, under training section, and also at the trading naked website, labeled under, "The floor trader method".

Like the other previous posters say, it is important find out the right combination of timeframe and type of MA. You may want to explore the different types of MAs first. The least laggy MA seems to be the HMA.

And next is to explore whether the MA of your choice acts as support/resistance to the instrument you're trading, on that particular timeframe. And that'll take a while to backtest/forwardtest.

The two articles that I had mentioned above will guide you in the right direction of the MA usage. But whatever you do, do not use MA crossovers as entry/exit signals, instead use price versus the MA. Price is king.

Here's a part of my chart to illustrate, notice the behaviour of the price when it touches the WMA.

Schaefer
 

Attachments

I no longer use any regular MA's ... I only use the MACD and STOCH now. I use them on price and volume analysis...strong combination imo.
 
Quote from Schaefer:

Hello, Gary, the moving averages are very useful IMHO. But they get the bad rap due to their misusage by many traders. You can find good examples of proper usage of MAs on both CME website, under training section, and also at the trading naked website, labeled under, "The floor trader method".

Like the other previous posters say, it is important find out the right combination of timeframe and type of MA. You may want to explore the different types of MAs first. The least laggy MA seems to be the HMA.

And next is to explore whether the MA of your choice acts as support/resistance to the instrument you're trading, on that particular timeframe. And that'll take a while to backtest/forwardtest.

The two articles that I had mentioned above will guide you in the right direction of the MA usage. But whatever you do, do not use MA crossovers as entry/exit signals, instead use price versus the MA. Price is king....
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Quote from Gary Fox:

Ouch!

That sure didn't generate much discussion.
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Maybe not but you've now been given some significant research to do.

HMA = Hull moving average

Google it, understand it, and hopefully benefit from it.
 
Quote from kut2k2:

Maybe not but you've now been given some significant research to do.

HMA = Hull moving average

Google it, understand it, and hopefully benefit from it.
More...

Hello kut2k2,

Yes, I am going to do that.

Thanks also to the few good folks who posted. Where applicable, I'll study/backtest your input.

I'm spending many of my hours with my backtesting program looking for a small edge. I am only interested in end of day trading with a hold from a day to a couple of weeks. (LeBeau says the "Sweet spot" is often in the 14 to 16 day range so I'm spending a great deal of time around that range.)

I have tried many tests using ma's as a trend reference, and I guess I was just looking for a new idea to try in that regards more than anything.

Thanks again,

Gary
 
I just find them useful to have on the chart as a visual to see how far a stock has moved up or down. What I mean is that I don't think that buying a pullback to this moving average or that one, or a moving average crossover is likely to be profitable for anyone. You can look at the distance a stock is from its key moving averages though and get a fairly decent idea of how stretched out it is. If its gone "a little too far" in one direction or another. This just takes some time looking at charts. Some people like Larry Connors have published decent research on exact percent extended from this MA or that one means there is this % chance of a pullback in X number of days, thats all good stuff too, but I am more of a visual person..so I just use them to have an idea of where a stock is at. Hope that makes sense.

Brandon
 
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