What Are Moving Averages? Find Out With This Stock Technical Analysis Course
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Written by: demetra.errico.technicalanalysistechnicalan
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Date: Thu, 18 Feb 2010 |
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Many models have a foundation that is on moving averages . Some are quite complicated and ingest large numbers of variables . A bead is drawn on a trend direction by most models after it has been manifested and will keep traders in this market as long as you don't have a change in the trend. Some moving averages try to forsee trend changes . These are gainful to a trader that is properly capitalized who is able to start a position that is recommended and can underlie more losing than winning trades .
A stock technical analysis course shows that the thought behind moving averages (MA) is to figure out when the direction of prices is different from recent averages in price . As long as the price average is lower than the current price of the last 10 days, 20 days, or even 90 days the trend spins onwards . The average most often observed is the ten day MA of closing prices . The advantage to this method is that every day's price is given equal weight . It is assumed that the trader bestows as much importance on last week's prices as he does on yesterday's .
This does not conform to reality . A short term trader's horizon is extremely limited . Prices of commodities do move more quickly than most other forms of investment , so, shorter series usually will do the best.
A great MA should:
1) quickly see a big turn in a price trend 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 get lashed into consolidation or minor swings.
3) the moving MA plot has to be adjustable to the commodities volatility .
4) if the commodity locks limit the MA plot should be responsive .
The problem with this approach is that the to use as a reversal indicator . Most of the time, the trading decisions of moving average technicians by changes that occur in the price market based on the line of MA. The more sensitivity there is with the MA the smaller the advance differential amount and degree will be and the larger the number of sell and buy points , resulting in much whip-saw and consequent small losses as taught by a stock technical analysis course.
Of course , the shorter time span there is , the more the MA is sensitive to a reversal or trend termination . The action on new trends is quicker and getting established doesn't take as much time. However , tarders usually pay for the sensitivity because, and to repeat , the larger the trades are that get made and the shorter the moving average is with the addition of greater commissions to the whip-saw losses .
Therefore , there is a delay with moving averages in the indication of the turn of the price trend . Many times the delay is much greater than would be the case using P&L charting, simple charts, or point and figure charting . The main advantage of this position is that users are automatically put on board for each trend with substance ( as all trend following systems do.) You can find out more from a technical analysis course.
About the Author
Charles Drummond is a Canadian trader who has written nine books about trading and has created a stock technical analysis course called “Drummond Geometry.” His biography and further information about his work can be found by following this link http://www.squidoo.com/stock_technical_analysis_course
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