Should we use the 200 day EMA or SMA?

[Tradex]

However, basic moving averages like the SMA, EMA, or WMA don't repaint.

Maybe repaint is not the correct word but I couldn't find a better one to describe the situation.

The problem with EMA is that it heavily depends on the most recent price level. So if the market makes a sudden move, the EMA will quickly update the chart.

That means that the price could touch a perceived support line (on the EMA chart) at, say 8:30 AM. So you buy.

But 5 minutes later the price changes again and the EMA is updated accordingly. But this time you discover that the price never really touched that nice support level you saw earlier, precisely because the EMA has been updated in the meantime.

This is only true when the candle is still not complete of course.

This problem does not exist with simple moving averages, as they are hard to move from one bar to the next.

 

[schizo]

Excellent points. Most used is 200SMA, eg S&P 3000. Main reason to follow it is solely to be aware of what other traders are looking at.

Remember as with all squiggly lines they're not useful in isolation, price action, volume and ranges/volatility generate actionable signals.

The better you get, the more you realize it's all about price action and trade management, charts and squiggly lines are less important

Good point. The only reason why you should monitor SMA(200) is because mutual fund managers follow them. Well, according to CNBC.

 

[Tradex]

Good point. The only reason why you should monitor SMA(200) is because mutual fund managers follow them. Well, according to CNBC.

The most important thing to watch is not the SMA -200 itself (there is zero magic in that number), but how traders all over the world react to that level.

For example, do I see a follow through or a price rejection at the SMA-200?

 

[schizo]

The most important thing to watch is not the SMA -200 itself (there is zero magic in that number), but how traders all over the world react to that level.

For example, do I see a follow through or a price rejection at the SMA-200?

Yes, and it's also important to know that those who have the power to move the price are institutional folks like hedge funds or mutual funds, not small fries like you or me (figuratively speaking).

 

[Tradex]

those who have the power to move the price are institutional folks like hedge funds or mutual funds,

Absolutely, and when these "whales" move they leave huge footprints that the astute retail trader can profit from.

 

[tommcginnis]

??

Michael Covel provides REAL proof, REAL data, REAL results and decades of actual performance charts from professional money managers that show that simple trend-following techniques work.

Most hedge funds and mutual funds hate the guy because he basically shows the average trader that he does not need them.

Does Covel provide so much as a single algebraic formula for trend-following of *any* form? No.
== Total FLUFF.

 

[Tradex]

Does Covel provide so much as a single algebraic formula for trend-following of *any* form? No.
== Total FLUFF.

Oh, so now to trade profitably we need an "algebraic formula" ??
Where did you read that, Mad Magazine ?

 

[tommcginnis]

Oh, so now to trade profitably we need an "algebraic formula" ??
Where did you read that, Mad Magazine ?

That's hilarious -- the Mad Magazine Guide to Trend-Following would NO DOUBT contain more usable content on trend trading than Covel's slop. (I know I'm probably aging myself with that observation, but what the hell. It's a world world world world Mad.) But to answer your implicit question, YES, we need an algebraic formula to trade trends. Do you even realize that you wrote that? Hilarious.... What a goof.

Hey, you win. You get last comment, cuz....... nobody else should step in this goo.

 

[Tradex]

YES, we need an algebraic formula to trade trends.

Sure, whatever you say.

 

[ph1l]

Does Covel provide so much as a single algebraic formula for trend-following of *any* form? No.
== Total FLUFF.

Michael Covel's "Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets" actually includes someone else's code for a trend following system, so his book is only 99.99% fluff.