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Sunday, March 22, 2009

moving averagers

Moving averages

Moving averages provide an excellent way to identify trends or confirm reversals.

Moving averages are not "predictive" but are "lagging" indicators as a time delay is always present.

Moving averages are an extremely simple and convenient way to trade. They are excellent in strongly trending markets but are practically useless in sideways markets as they tend to generate too many whipsaws.

The moving average removes emotions from the stock. One shd remain long as long as the stock remains above the MA. When the stock cuts the MA from above, exit position.

The chart below has 20 DMA (grey), 50 DMA (red) and 200 DMA (blue).

Sometimes, the moving average will give a "whipsaw" or false buy / sell signals. This means the stock is rangebound and the direction wil be clear only a break out of the trading range.

As one can see from the chart, the 20 DMA has generated the highest whipsaws while the 200 DMA has only given a hold (in relation the timeframe).
Posted by appleadvisory at 3/22/2009 06:00:00 AM

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