Stock Technical Analysis Course – Describing Moving Averages
Most models are based upon a system of moving averages . Some are quite complicated and include many unknowns. Essentially all models draw a bead on the direction of a trend after it is manifested and as long as the trend doesn’t change will keep traders in this market . A few moving averages try to predict any trend changes. These ones can be lucrative to a good trader that can initiate a position that is recommended and many be behind more losing trades than winning ones .
A stock technical analysis course will teach that the idea behind a moving average ( MA ) is in determining when price direction deviates from recent average prices . As long as the price average is lower than the current price of the past 10-100 days the trend goes on. Most often observed is the ten day MA of closing prices . The benefit of this method is that the same weight is given to the price of each day. The MA assumes that yesterday’s prices and those from last week get the same importance with a trader.
This doesn’t stick to reality . A short term trader’s horizon is extremely limited . As compared to other investment forms, commodity prices more rapidly vibrate, so, usually the best performance is from a shorter series .
The best MA should :
1) immediately observe a price trend turn not days after the turn has occured
2) we do not want the MA plot so close to the plots of the daily prices that we would be whip-sawed in consolidation and minor swings .
3) the moving MA plot must be adaptable to the volatility of the particular commodity .
4) we want responsiveness in the MA plot if the commodity locks limit .
The problem with this approach is that MA lines can be too lazy to use as an indication of reversal. More often , the trading decisions of moving average technicians by changes in the price market relative to the moving average line . The more sensitivity there is with the MA the smaller the advance differential amount and degree will be and the greater will be the number of buy and sell points , resulting in much whip-saw and consequent small losses as taught by a stock technical analysis course.
You will find, the shorter the time span , the more a trend termination of a reversal can be sensed by the MA. New trends are acted on more quickly and getting established doesn’t take as much time. Of course, the trader pays for this sensitivity more often than not because, and to repeat , the shorter the MA the larger the trades that are made with the addition of greater commissions to the whip-saw losses .
So , when it comes to the price trend turn, there is a delay with moving averages . Often this delay is larger than you would see with using P&L charting, simple charts, or point and figure charting . This position’s main benefit is that it automatically puts the user aboard every trend of substance (as do all trend following systems .)Â More can be found out from a technical analysis course.