Moving Averages: Which ones you use and why?

[deant]

Don't know if I am just using the same MAs but I like to have the Slow Stoch and MACD both set up and look for when they are congruent. then it is just a matter of checking that price is below/ above (depending on the trade) the 5 period MA on 3 different time periods .. 5 min, 1 min and tick chart. Lately I seem to be doing okay focussing mainly on the tick chart and have the oscillators set on that - Metatrader does not seem to allow for that - so I use a tick chart I found on at ForexOil.com Also I noticed that tick chart was faster than the Dukascopy charts even though they are supposed to be big time brokers. I set my Metatrader chart to 1 min and use two monitors ... with the tick chart in a separate monitor and a couple of other time frames.

 

[Eric Alyea]

Making sure the commons understand

Back up a step and tell the rest of us how to tune-in to a MA (Multiple average) I didn't mean to slow things up with definitions, But you are so fast with thoughts in your own head that your conversation leaves some of the new guys behind.

Moving averages

I think it (Moving averages) is for when you are getting old.
I am getting old, not lazy, {just cripple}, and not afraid to work. If it is real money, I look at every angle. I “LOVE” the charts and put my moving crosshair on them to get my excitement (rocks off, whatever)

Pharaoh posted below., this edit 03:07 CST USA

I personally like to see the “Troll/Ubber Banker’s sweat” at the 1 min to 10 sec. level. I only go 5 sec. for a real trade. I have that (sub.) screen to look at what the trader of choice are doing before I pull the trigger.
Boy do I get pissed when the margin spread is “NOT” at what I clicked.

 

[Pharaoh]

I didn't mind the refersher at all. It's been so long since I read one of Guppy's books that I'd forgotten his logic of short and long term traders aligning.

Guppy developed his MMAs for the stock market, but the seem to work adequately in forex too. (your mileage probably will vary)

 

[Forexwatchman]

Certainly we can and should go over definitions first Eric, although I'm also hoping to see more input with regards to actual trading strategies, like the one brought up by deant. The MACD presents us with a concept (trading the cross-over of two or more MA's) that I'd like to get into later on in the thread once we get everyone "in tune" as I remember Eric putting it.

But in order to make this thread more informative, lets go over two more important functions that MA's are capable of showing us traders about the markets we're trading.

When I first glance at my charts and study my alligator indicator (I use different settings than the original Bill William's settings, which comes with the MT4 platform) I seek to answer my first BIG question: Are we in a trending or ranging market? The alligator provides the answer through its use of three moving averages. If those three MA's are close together and braiding, then we are ranging. Braiding occurs whenever we see the alligator moving sideways and the blue and red MA's criss-cross each other multiple times. If, instead, the MA's are separated and running parallel to each other, then I know we are trending.

So if the market is ranging, then I ignore the alligator all together and revert to my range trading strategy. It has served it's purpose for now, but I know it won't be able to help me any further until we see a trending market again.

If it's trending, meaning the MA's are running parallel to each other, then I ask my next question: What type of trend is this? That question requires more than one answer, all of which the alligator can provide.

1) What is the strength of the trend (strong vs. weak)? The distance between the blue and red MA's as well as other factors I'll get into later help determine this.

2) What TYPE of trend is it (retracement or continuation)? This involves using higher timeframes to see if the current rally you see on the hourly chart, for example, is actually part of a retracement phase of a much bigger downtrend on the 4 hour chart. The answer helps determine crucial decisions such as entry/exit levels and T/P and S/L values.

I feel like that's more than enough information for now to stimulate some discussion. Feel free to continue to post any ideas, questions, or strategies as we go along! Thanks for all the input so far!!!

 

[I love Dow theory]

moving averages

there appears to be a lot of words posted to describe how to use a very simple and effective trading indicator.

Moving averages: these are how to read the signals (in declining relevance)

1) Price moving through average (if the price action crosses above a MA it is a buy signal)
2) Moving averages crossing each other (i.e. if the 5 day crosses above the 9 day it's a buy signal)
3) Direction of the averages (if they are pointing north, the market is in a bull trend)

and sell signals would be the reverse of above indications

simple but effective

 

[Forexwatchman]

Thanks for the input I love Dow theory, but I wouldn't go so far as to call using MA's simple. As with most things forex related, the overall theory is quite simplistic, but the devil is in the details my friend. Be patient while the thread is still young. I hope to get way more in depth later.

Also, I thought I would add a visual of what I was describing in my post above. The attached image is of the EUR/USD as of this writing, and shows how I've used my 4 hr timeframe to keep my profits running along, while also being able to interpret the same alligator on my lower timeframes. You'll also notice the red MA provides great support/resistance for price action when it's still trending strongly.

Yet another good question that I'd love to get input on: What timeframes do you use your moving averages on and how do you deal with conflicting signals on two separate timeframes? In this pic I go over that very briefly, but what do you do?

 

[I love Dow theory]

Moving Averages

many thanks for that FOREXWATCHMAN, nice chart. But what I'm saying is you don't have to make MA complicated. If you look at the example you gave and count back 6 candles from your signal you see that if you would have sold when the PRICE ACTION crossed below the RED MA then you would have entered the bear trend much earlier.
Happy Trading!!!

 

[Forexwatchman]

That's a tactic I looked into long ago and yes, whenever price action is trending well it does appear to work out in your favor. But notice the two bullish candles in the circled region of the above pic. Twice price action broke through and closed above the red and then the blue MA's, yet if you had entered long, you would have been way off!

Whenever price action is counter-trending and consolidating, you will have far more fake-outs than successful trades if you only place orders based off of a MA line break. It's actually a very low success rate after back testing it just 6 months, regardless of which MA you use. It happens less often on higher timeframes, but its still too risky.

That's where the crossover comes into benefiting you because it filters out the fake-outs more often than just using one MA. There are more indicators that can help filter out such fake-outs, and ones that can help get you in a trade before the crossover happens, but I'll save that discussion for latter.

For now I'm off till Monday. Maybe by then I will think up another way to smoke out of hiding some of our more senior members of this forum. Guess summer break hasn't quite ended for them yet. Anyway, it's beer-thirty and I'm thirsty. Enjoy your weekend folks!

 

[Eric Alyea]

What are the sites for Multiple Moving Averages

A key thing that I did not catch in this thread is:
What site/sites can I/we begin to look at moving averages.
Guppy is a paid subscription, are there any free MMA (Multiple Moving Averages) sites for beginners to play with?
Then what site does anyone else use, either free or pay? Forexwatchman what site are you getting you MMA’s from?

I was trying to find the name of the Guppy book Pharaoh recommended so I went to FPA “search” (4th tab on the Green bar from the left). I typed in “Guppy” and got a lot of good data.

The book is “Trend Trading” by Darryl Guppy. I have a story about my ordering this book. It is shipped from Australia, and the air shipping costs almost as much as the book. I personally would choose the “Slow boat” to the USA or where ever. Get the book though. Ask if it is available in an E-Book

The 1st mention of the book “Trend Trading” by Darryl Guppy. (Also this is one of the better threads on books and study material on FPA):
https://www.forexpeacearmy.com/forex-forum/beginners-bootcamp/32-good-books-read-newbie.html#post42

Pharaoh Oct. 2007. His 1st posting and comments on “Guppy” and MMA (Multiple Moving Averages)
https://www.forexpeacearmy.com/fore...stems-strategies/956-guppy-mmas.html#post3296

Also what do you (Forexwatchman) or anybody else use for your back testing?
I use “Forex Tester 2"

 

[Forexwatchman]

Nice to see you hanging in there Eric! I also use Forex Tester 2!

I got my alligator settings from a private forex coach who charged a lot more money than he was worth. Now I share it for free and I go over how I use it and how to set it up in MT4 at my website Forex-Nation I also go over how I set envelopes on one of those MA's in order to gauge overbought/oversold conditions much like Bollinger Bands can act as dynamic support/resistance during ranging markets.

My only introduction to the Guppy (besides Pharaoh's input) was on a thread that RiceX actually recommended I read called The finest in trend trading. If you follow that link it will take you to the 21st page of that thread where the author actually introduces using the Guppy MMA's along with trendlines and it makes does make for a great educational read even if you're not interested in MA's.

That's the direction I want to take this thread if others are also willing: How do you combine other indicators with MA's to filter out fake-outs? My experience with MA's is that they are very unreliable as a standalone indicator, but they can become much more effective when combined with other indicators. This is a common experience for all traders to have, where they find a new indicator that seemingly works well enough to be promising, but the next step is to figure out how to enhance its power and filter out those fakeouts. That is how you begin to create a system, through trial and error and mixing and matching in a focused effort to keep things simple yet also efficient.