Moving Averages are Random

[Handle123]

I can see back in early 1900's some kid in a darken dirty office corner is counting last 200 days closes by hand, for those who use them, have them for next day. And he wonders, "why 200"? LOL

It makes no sense to me to change timeframes from one heavy volume market to another, each have their own personalities, so learn each of those you trade. Only reasons I think it better to use larger timeframe is reduced volume means spotty charts. There is no magical periods to moving averages, but there is magic to how an individual uses them. Periods of timeframes normally change, least for me, to bring down risk, like using 45 second n Dax and five minute in coffee, Dax has large range bars using one minute, and although coffee can move quickly, lack of volume to be using one minute bars for myself.

Believe it or not, most indicators work in some fashion when you know chart reading well. Indicators are good to indicate something you should already know about the charting but make it easier to read. If I took the indicators off my charts, I still be able to see the "thrust or spring" bars which on moving averages see moving average start to change direction, can see the bars having higher lows/highs, moving averages are sloping, tightness of broken pivots will show up on RSI as divergences, seeing price pop up or down for several bars-price be touching Bollinger Bands. So many would say why then use the indicators, for me it just making scalping so much easier. But most younger and some older traders don't have a clue of what an indicator should do as price goes up or down, they don't know their craft well enough and mistakes or losses happen.

 

[Q3D]

Assertion in thread title: "Moving Averages are Random"

Nope.

Q3D: You got some ideas, but people on this site are either expert traders or people who have been at this game for a very long time (5k++ hours up to decades). In such a forum it is imperative to be very precise and provide some arguments of value/insight. This argument about MAs is at best interesting, as a fleeting thought, but most of us are long beyond the stage of belief in the "magical MA to solve our trading problems". Many many places people discuss which MA is correct, but not here. So when you try to assert what most of us already know, at least try to be more precise, or it becomes too boring arguing about semantics and different ideas of definitions.

Ie. instead of posting all at once, try posting in your favourite texteditor. Then try to refine your ideas, until you believe them presentable. Maybe, just maybe, you get more ideas to explore too!

Solution to this discussion:
Moving averages are the average of prices for the period chosen, not random. They may be used as a tool whenever you don't have a better tool in order to "draw a line in the sand", but are far from the only - or even best tool in the toolbox. Given the right analysis, MAs may be used or may be used loosely as a directional tool, though shifting responsibility of edge into something else in the trading plan.

Why MA, why not percentiles, max, min, or gazillion other mathematical formulas, which by themselves without foundation and plan, have little to no edge?

If someone can make MAs work, good for them!

The angle of moving averages is not a predictor of future price direction. MAs are not effective as a support or resistance level due to price's random behavior around them.

Let's look at Crude Oil in 2014 and early 2015 to see an example of how moving averages and slopes of moving averages are useless. The 200-period moving average did not start a clear angle downard until after CL moved to the lower 70s. PA guru logic would suggest a test of the 200 and 100 period weekly charts should occur, there never was such a test, selling continued until exhaustion without a concern for higher-period moving averages and failures at them, which according to PA guru-logic should be the signal to strengthen the bears' case for further selling.

 

[Turveyd]

I see pretty good for in m1 wise with MAs, give faster these days, just to judge short term momo, Dax just trended up the 6 perfectly.

Envelopes/BB to give range around the smas is where its at mind.

I'm a none believer in pretty much everything else mind.

Making money from this, yeah slowly, given 10k of experience lol

 

[K-Pia]

Yes it works if the instrument has momentum.
If the mean of the daily distribution is not around 0%,
The moving average system tend to work. However the hard part,
Is to tell if the momentum will be present or not in the future.
Ex Post, It has worked on the S&P500 but will it work later ?
Moving average system needs Momentum. That's it.
It doesn't always work. It require prerequisite.
As everything in trading. It has dependence.

 

[wrbtrader]

The angle of moving averages is not a predictor of future price direction. MAs are not effective as a support or resistance level due to price's random behavior around them.

Let's look at Crude Oil in 2014 and early 2015 to see an example of how moving averages and slopes of moving averages are useless. The 200-period moving average did not start a clear angle downard until after CL moved to the lower 70s. PA guru logic would suggest a test of the 200 and 100 period weekly charts should occur, there never was such a test, selling continued until exhaustion without a concern for higher-period moving averages and failures at them, which according to PA guru-logic should be the signal to strengthen the bears' case for further selling.View attachment 164011

You got some of your information mixed up (semantics) but I do understand what you're talking about.

Just remember that to be called a "price action trader" implies they're NOT using indicators and that includes price moving averages. Yeah, I do know there's a minority of traders out there that uses only one indicator or a few indicators that are calling themselves PA traders but that's wrong. They are in fact still a trader that's still using an indicator. Thus, they are not a PA guru and whenever you see them using any kind'uv indicator while calling them self a PA trader...you should correct them because that term was coined by those that do not use indicators and then later someone out there thought it was a cool phrase to use even though he was using the MACD indicator.

Regardless, to the semantics, whatever guru you find...no matter what that person suggests...there's another guru out there suggesting just the opposite.

This has been the argument about TA for decades. One trader using TA will see one thing and another trader will just see the opposite. Simply, your guru said one thing and another guru was on record in saying the opposite...one of them looking like he/she knows their stuff.

That was the very first thing I notice about TA +20 years ago...you can have the same time frame, same trading instrument using the same discretionary strategy...it doesn't matter to the number of traders (e.g. 2, 10, 100, 1000)...their own personal experiences, trade experiences, psychology will get involve and determine their decisions.

Thus, their analysis and trade results will be different.

I'm a heavy user of social media...I see so much difference in opinions and analysis among the so call "experts", "gurus", "veterans", "educators", "professionals" about the same darn trading instrument and its scary. I even see the same amongst those that don't use charts and only into fundamental analysis...still scary. Just as important, algorithms are well known to be trading opposite of each other...everybody think they got it right and that's just not possible.

By the way, I like the chart and I do remember seeing many as similar as such on stocktwits (hangout for retail traders) and on Bloomberg markets website by some chart analyst that's a professional analyst. I think its funny or expected that all of you (including yourself) have a different analysis.

Heck, watch CNBC and Bloomberg for awhile. Some financial institution has their top analyst on the TV for an interview and he/she say something is a BUY and the same day on Bloomberg a different financial institution has their top analyst being interviewed and he/she says the same trading instrument is a SELL.

I recommend you stop worrying about what others say, do your own testing and then learn to play the probabilities, risk management and many other things that successful traders (retail and institutional) have learn to do.

 

[K-Pia]

There is no holy grail that will works everywhere, everytime.
Even brokers can go bankrupt. Whereas their business looks sure.
If you deploy a good system in wrong conditions then you're doomed.

 

[K-Pia]

I mean, it's like saying that a medecine doesn't work,
Because it does not cure all the sicknesses !
So know the limits of your system.
Before blaming the patients.
Or trashing your medecine.

 

[qxr1011]

unreliable when used to predict future price direction

"I have a bad news and a good news for you. The bad news is nobody can predict the market. The good news is you do not need to predict the market to make money on it." (Old wall street proverb).

Indicators (including MA) do not predict... They indicate.

Indicate what? What market is doing now.

What is now? Now is a length of the chosen period (time frame).

If included in the definition of the trend, indicator(s) can indicate borders of the trend.

That's all.

 

[Turveyd]

"I have a bad news and a good news for you. The bad news is nobody can predict the market. The good news is you do not need to predict the market to make money on it." (Old wall street proverb).

Indicators (including MA) do not predict... They indicate.

Indicate what? What market is doing now.

What is now? Now is a length of the chosen period (time frame).

If included in the definition of the trend, indicator(s) can indicate borders of the trend.

That's all.

It's about, realising what the market is doing, soon enough that's it's still doing it, too late and you'll just catch a reversal and simply joining it.

SMA's tell you which way it's going, just a matter of trusting it enough to trade with and realising it's turned against you soon enough to limit your losses, while letting it run.

Easy, pretty much got above cracked, but like 10years with far too much time off!

 

[murray t turtle]

In general, I get the feeling that most people here are more concerned with "proving that this or that doesn´t work", instead of dedicating the same amount of effort to "finding something that DOES work". But hey, I´m just one guy in one internet forum, what do I know?

%%
That can be a good thing- it takes all kinds to make a market.LOL-LOL