This is the 3rd Close Below the 50 dma in 2 weeks —

[Overnight]

On the contrary, MILLIONS of traders all over the world make trading decisions around these highly popular moving averages (the 50, the 100 and especially the 200 day), so it pays to watch the market's reaction when the price touches one of these averages.

But granted, there is absolutely nothing magical about them, they are just silly numbers.

It is a self-fulfilling prophecy then, isn't it?

MILLIONS of traders make a trading decision based on a market touching a MA. So the MA becomes not the portender of the market's direction...But rather the traders determine what happens next to the DMA.

If everyone believes, "Oh no, we've dropped below the 50 DMA...sell, sell, sell!" then guess what? The market will drop below the 50 DMA.

The traders define the line, but only after the line defines the traders.

I have a video analogy for that somewhere(Of course you do, ON.)...stand by...

Ahh, here it is...

 

[Tradex]

It is a self-fulfilling prophecy then, isn't it?

Yes and no!

For moving averages and other mathematical indicators the answer is yes, of course.

For classical chart patterns like Head and Shoulders or triangles the answer is less obvious.

Take Head and Shoulders for instance, they were working the whole time but NOBODY knew about them until they were popularized by R.Edwards and J. McGee, in their now famous book Technical Analysis of Stock Trends.

So WHY did they work in the first place, when they were still virtually unknown to the public, if the whole technical analysis thing is just a self-fulfilling prophecy?

See the problem here?

 

[maxinger]

We closed below the 50 dma for the third time in about 2 weeks. I think thats an ominous sign. However, the dow isnt doing that badly.

Simply delete the 50dma line and the ominous sign will disappear!!!
There is absolutely no ominous sign. The market has been moving very healthily,
and will continue to move healthily.

Always come to your trading room with confidence, and not be overwhelmed with fear and anxiety.

Be thankful that you have profited massively from the huge market movement.


NQ is now moving in a big range (around 10950 to 11550).
It will continue to move in this range until the chart says otherwise.

 

[Tradex]

It will continue to move in this range until the chart says otherwise.

Yep, in the meantime daytraders are quietly profiting from the mini trends inside that range.

Trading is about making money, NOW, not about predicting anything.

But you know that already Maxinger.

 

[ElectricSavant]

DMA

 

[VicBee]

Back during the first quagmire the US got itself in in Iraq, the financial sector was looking for directions, wobbling in uncertainty about what the repercussions of that war would have on the world's markets.
I was in Hong Kong then, listening in on a very important call including the world's top banking research teams and a military analyst with no name. He spoke with confidence and outlined certainties; I imagined all these financial gurus taking notes and strategizing just as my Head of Research friend was doing.
After the call ended, I expressed my surprise at how the banking elites were basing their investment decisions on this one guy's assessment, however good it might have been. His simple answer stuck with me all these years, he said: "The world is what we make it." I knew when he said that that he didn't just mean it figuratively. The financial establishment was going to set the course of things to come.

 

[Tradex]

The financial establishment was going to set the course of things to come.

Of course, that how the "system" works...
Thanks for your post.

 

[Scataphagos]

We closed below the 50 dma for the third time in about 2 weeks. I think thats an ominous sign. However, the dow isnt doing that badly.

Normally to consider a level "broken", price needs to take out a "buffer"... to contain false breaks. Some claim the buffer should be 2%. Buffers are subjective and like stops... there is an "art" to them.

The 50 is still within the range of "holding". (StockCharts.com shows the low for this correction @3310. Currently @3357, with the 50 @3340. Shouldn't be looking at shorts just yet.... unless your gut* has convinced you that the breakdown is coming.)

*Here's what an old timer told me about "gut feelings" years ago.... "When you get a gut feeling about the market, (1) get out of your chair and walk over to the door, (2) bang your head... HARD... against the jamb until the feeling goes away".

 

[jys78]

Means nothing at all.

 

[bone]

But in actuality the 50 DMA hasn't really worked like that the past decade or so. Unremarkably, the 50 DMA held more tests to the upside than it did to the downside. For example, this year you would have made alot more money buying April than selling February.

You will need institutional order flows to get a momentum change. A collection of retail orders isn't going to move a major market.

It is a self-fulfilling prophecy then, isn't it?

MILLIONS of traders make a trading decision based on a market touching a MA. So the MA becomes not the portender of the market's direction...But rather the traders determine what happens next to the DMA.

If everyone believes, "Oh no, we've dropped below the 50 DMA...sell, sell, sell!" then guess what? The market will drop below the 50 DMA.

The traders define the line, but only after the line defines the traders.