Moving Averages

R

rubbles88

One of the indicators used by traders to determine S/R is the Moving Average. However, different traders use different MA periods. It seems that the most popular are the 20, 50, and 200, though, others use other numbers. To further complicate this, there is simple or exponential MA.

I have read that the reason these numbers are significant is that many traders watch them and act accordingly when the S/R supposedly related to these numbers are violated.

What period do you use, if you use one, and what type (EMA or SMA)? Why?

Also, I would like to solicit your opinion on how you will manage a trade when the gap between the EMA and SMA price is wider. As an example, GENZ today, 1/8/01 is closed at 53.41. The stock's 200SMA is 52.85 and 200 EMA is 51.89. If you decide to buy tomorrow, which MA will you be watching for breach of support and why?

Thanks for your opinion and comments.
 
I know,,, it's a dilemma. The truth is there's no real truth. The easiest way to solve the problem is use the one that's working!

If you want to emphasize more recent price data, to encompass price shocks, major events or whatever, use exponential. If you want equal emphasis put on all price data, use simple.

Now, if someone can answer this question for me.... my charting software has an option to input the number of days your chart goes back. Take for example a 5 minute chart: the 20 period MA on a 5 minute chart going back 50 days is different than the 20 pd. MA on a 5 minute chart going back only 3 days...so what's the answer? I've just been using the maximum days allowed to encompass the most price data possible. Any ideas??
 
volk,

the 20 period MA on a 5 minute chart going back 50 days is different than the 20 pd. MA on a 5 minute chart going back only 3 days.

You didn't say whether you've set this up as a sma or an ema, but let's assume the former. Twenty periods on a 5 min chart requires 20x5=100 min for the first "point" of the moving average. In other words, a little less than 2 hrs. So if you've set up sma's, then a 20ma on a 5min chart will be the exact same whether your chart goes back 3 days or 50 days since either has more than enough data. However, if you setup ema's then there will be a slight difference (for 3 days vs 50 days) because the calculation will take into account all data, weighting it heavily towards current data.

Many traders and investors use the sma's for the longer periods (i.e., 50/100/200), and the ema's for the shorter periods (i.e., 5/10/15/20). The critical thing is not which one you pick, but that you fully learn how the one you've chosen synergizes with price data.
 
You must log in or register to reply here.
Back
Top