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Chapter 11, Part VIII. Summary of Moving Averages. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 19, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    6. Due to different weight application in calculation procedure of SMA and EMA, many traders point out that, at least theoretically, EMAs react faster to most recent price action, compares to SMAs – hence an EMA better shows real-time market sentiment and what is happening now, that is more important then historical sentiment. From the other side, an SMA is better at smoothing the different splashes and is not so sensitive to fake outs. This lead us to the conclusion that EMA is better for early trend catching but it prone to multiple fake outs, while SMA is less sensitive to fake outs, but also has a greater delay in trend identification. Although it follows from the math formulas, and theoretically is true, we can’t say that this fact has dominating importance in the practical application of EMA vs. SMA. Our view is that there is no solid advantage of EMA over SMA and vice versa.


    Meanwhile, DMA has gained some more attention in our thoughts;

    7. The greater the number of periods in the calculation any MA has – the smother it is;

    8. Longer period MAs are slower to react to changes in price action, but better protect you from spikes and unwelcome splashes. Still, due to delayed reaction on the rapidly changing situation in the market, they could have a significant lag in trend changing and that, in turn, could lead to missing some good opportunities to enter the market;

    9. You can use MAs for trend identification, as well as for entry points and trend changing points;

    10. MAs could be used as support and resistance levels;

    11. Also you can use combination of two or more MAs for the same purposes – trend identifications and support/resistance areas.

    12. Applying MAs as a single trading strategy could lead to excellent results on a trending market which very rare ****s to consolidation, and poor results in a ranging market because of whipsaw price action;

    13. Choosing procedure of suitable type and period of particular MA demands a lot of hard work. Furthermore, usually you will have to do this work again and again to find a suitable MA not only for particular pair, but also for different time frames.


    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.


    Note: FPA ranks are earned in the battles against scam, not in the classroom.
     
    #1 Sive Morten, Dec 19, 2013
    Lasted edited by : Mar 14, 2016
    Hamza Samiullah and fran alvarez like this.
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