![]() Nothing magical about that, right? That’s just mass psychology, that’s all it is. In other words, the moving averages that I use are the ones that most people use. On the positive note, however, which ones do I use since I title this the best moving average, what do I consider the best ones? First of all, I feel that they do have merit and I do use them purely as a self-fulfilling prophecy. Number one, don’t get too enamored with them and there is no best moving average. So two points here to finish off a cautionary tale. Trading is more challenging that it used to be back in the days of yore. And here’s the problem, markets these days, they don’t trend most of the time. So in non-trending markets, they can actually give you a lot of false signals – think you might have a trend that never develops. Most that are medium term to long term can work fairly well and trending markets but not so well in non trending markets. For this reason, they’re always lagging indicators because they’re calculating averages of past. There’ll be a certain number of bars based on various weighting of the data, nothing magical about that. ![]() They are literally just mathematical equations that are calculating the average. But let’s be very clear that there’s nothing magical about moving averages. One here like a cycle and other one is support resistance levels, another one is trend signals. Now, they can provide several different purposes. ![]() And then that really doesn’t become very helpful. Moving Average as Trend Signalsīut then what happens too is when you make things really short, then they can become noisy at certain times in the market. But, as far as cycles, it’s not really a fast cycle indicator, it’s a slow cycle indicator. I don’t personally use it for that, I find that it’s actually a little slow. Hull is one of the better ones I would say for this particular purpose. Now, that’s another potential use of a moving average that has particular characteristics. So that is one of the ways that this could potentially be used – up, down, up, down, up, down, and I think you can see. Moving Average for Cycles or Wavesīut what it is not bad for are cycles or waves. The blue line, the home moving average, it kind of, well, it definitely is not great for trend because that is not a downtrend, that is not an uptrend, and so on. ![]() One of the reasons is you’re using too fast of an indicator thinking you want a really fast indicator.īut for staying into a long-term move, it is not appropriate. So one of the problems people have is they say, “Hey Barry, I get into trades and I have a hard time staying in them for the full move”. The faster indicator will get you out sooner and not always when you want to get out. And this also is one of the reasons why you may want to use a more lagging indicator as well because it will keep you into trends longer. If you’re going to use a moving average for trend, then you don’t want to use one that is too fast because you will not be measuring trend by definition. But does the market continue moving down? Moving Average Trading Strategy Here, we get the black line moving down and then we get them moving up a little bit because it’s so fast. You might think that’s what you want but, on the other hand, there’s times when you don’t.įor example, if you’re using it for trend, you could say, “Great! Okay, let’s look for a move to the downside”. So a lot of people say, “Well, hey, I want a indicator that’s really fast and that can make a lot of sense”. The simple moving average calculates the average over the last 20 bars with an equal weighting. That’s because the exponential moving average gives more weight to more recent price data. So as you can see, the red line, simple moving average, is lagging behind the exponential. The black line is the exponential and the red is the simple. We’re comparing here the simple moving average and the exponential moving average. ![]() What I have put out here now as you can see in the upper left-hand corner are 20-period moving averages. ![]()
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