Moving Averages

[SAINT]

Can anyone comment on Moving Averages in the forex market?
I've traded using 10/20 smas and wondered if anyone had any tips
or advice on timeframes/strategy etc.

thanks

Saint

 

[FetteredChinos]

yup, dont use them.

unless you have very strict filtering criteria, trading short SMA and longer SMA crosses is not only tedious, but also barely profitable after you strip out costs.

FC

 

[trendie]

I thought that MAs would be smoother in FX than in Dow, cos you dont get huge volatility in FX like you do on Dow at 9:30am US-time.

But, it depends on time-frames etc. I am trying, but too early to tell.

Newtron Bomb gave a GBPUSD MA strat. 100-ema, I think.

I have found MAs on their own may not be enough, so I use them to lead my eyes to patterns.

( for example, I ignore any MA movement that doesnt have a 30-pip range within 2 hours, otherwise you get whipsawed early in morning, or evening.
this helps also to stop "seeing" patterns that dont exist !! )

still experimenting !

 

[Roberto]

Can anyone comment on Moving Averages in the forex market?

I agree with the comments above and can perhaps add one of my own ...

I've spent quite a lot of time looking at ways of filtering MA crossovers on slower-periodicity Forex charts. This isn't how I actually trade, myself - I don't use indicators for that - but it remains an interest though I'm not altogether convinced about the probability of discovering anything that's viable in the long-term.

Still, if you look at 3-hour and 4-hour Forex charts and take something simple like a 5-EMA and 20-EMA crossover (personally I would always be looking at EMA's or WMA's rather than SMA's), it certainly seems to be the case that if prices move enough to cause such a crossover AND keep moving for quite a while after the cross, there's a high probability that there'll be some more mileage in the trend. I'm not talking just about the fact that "continuation is more likely than change" (which is true, anyway), but suggesting that it _might_ theoretically be possible to define parameters which could lead to a profitable, trend-based "trading system".

This is the nature of the celebrated "Bunny-Girl WMA Cross System", discussed exhaustively elsewhere, which has certainly been traded successfully (and with shorter-periodicity charts than I've mentioned) by some people in the medium-term, though I believe that attempts to reduce it to a "simple, mechanical system" have, perhaps unsurprisingly, so far been a total failure.

It's also (together with par-sar) the nature of another system I've been looking at, which trades only very occasionally (perhaps so occasionally that some wouldn't really call it "trading") but so far with an extraordinarily high success-rate. All of which makes me think that it's still possible there's "something in it".

For myself, I'm interested in looking further at the probabilities of trend-continuation after an EMA crossover followed by a break through a point of comparatively recent resistance/support. I suspect, though, that such a "system" would turn out to have more to do with levels of support and resistance than with the MA crossovers themselves.

One thing which is fairly certain is that MA crossover signals need a _lot_ of filtering, one way or another, to become viable in the long-term.

 

[GotGold]

I think MA's have very limited use in FX due to the way the market moves very quickly and then consolidates. In my experience only breakout systems have potential.

 

[commanderco]

I would suggest that you forget moving averages.
The key to Forex is support & resistance and keeping your risk down to a few pips.

It is not an easy road to walk, but remember that 95% of the Traders loss money.

Now tell yourself every day that 5% of the people walk off with 100% of the money.
Once you believe this you will do whatever it takes to learn.

 

[adrianallen99]

I would suggest that you forget moving averages.
The key to Forex is support & resistance and keeping your risk down to a few pips.

It is not an easy road to walk, but remember that 95% of the Traders loss money.

Now tell yourself every day that 5% of the people walk off with 100% of the money.
Once you believe this you will do whatever it takes to learn.

If it was as simple as just knowing the support and resistance levels and just risking a few pips a trade, that would be great. Moving average can be useful, as can support and resistance, so can candle stick, and retracements, .... the list goes on.

Currently I put a 20 & 200 period moving average on my charts, and use 5,15 & 60min charts, but it depends a lot on what type of trading im doing. I don't really use MA's as an indicator of when to enter of exit a trade, but Im so use to having them on my charts it doesnt look right without them

 

[SvenFoster]

I suggest you put any moving averages you like on the chart and observe how they interact with each other and the price. As long as you stick to your given MAs and learn them you may stand a chance of some success however, If you use MA crossovers in a purely mechanical sense i suspect you won't do it for long.
IMHO the periodicity of your charts may also determine to an extent your success

 

[commanderco]

I agree with AdrianAllen99 that charts do not look right without MA´s. It took me sometime to delete them
even when I was not using them. For some deeply engrained reason I believed that they told me the Trend.

This is nonsense. To determine the Trend, look at the bare chart for 2 seconds. if you cannot see the Trend it is because there is none.

However, with regard to support & resistance, this what the game is all about, but not in any way as described by the tech books.
S&R will put you into a trade IF your stop is hit and it will exit a trade WHEN your stop is hit.
if you get it right you will make more money than you spend.
Note that I said "spend" not "lose" The trades that do not make money are the cost of doing business
in the markets.
Remember that your computor is just a tool and your best tactical reasoning will come when you have it
turned off.
Also remember that barcharts are a language just like music, french etc and you must learn the language
in order to play the game.
Think carefully about your tactical approach before you turn on your computor and then look to see if you can see your gameplay outlined on the barcharts ( all indicators & colours turned off)

Remember that some of the finest minds on the planet are dedicated to deciding whether the markets are going up or going down.
Remember that the world is round and so some of these fine minds are awake at any time
Remember that these fine minds read the same books that you do
and always always remember that 5% of the people walk off with 100% of the money

Now re address your orginal question regarding Moving Averages.

 

[dbphoenix]

I agree with AdrianAllen99 that charts do not look right without MA´s. It took me sometime to delete them
even when I was not using them. For some deeply engrained reason I believed that they told me the Trend.

This is nonsense. To determine the Trend, look at the bare chart for 2 seconds. if you cannot see the Trend it is because there is none.

However, with regard to support & resistance, this what the game is all about, but not in any way as described by the tech books.
S&R will put you into a trade IF your stop is hit and it will exit a trade WHEN your stop is hit.
if you get it right you will make more money than you spend.
Note that I said "spend" not "lose" The trades that do not make money are the cost of doing business
in the markets.
Remember that your computor is just a tool and your best tactical reasoning will come when you have it
turned off.
Also remember that barcharts are a language just like music, french etc and you must learn the language
in order to play the game.
Think carefully about your tactical approach before you turn on your computor and then look to see if you can see your gameplay outlined on the barcharts ( all indicators & colours turned off)

Remember that some of the finest minds on the planet are dedicated to deciding whether the markets are going up or going down.
Remember that the world is round and so some of these fine minds are awake at any time
Remember that these fine minds read the same books that you do
and always always remember that 5% of the people walk off with 100% of the money

Now re address your orginal question regarding Moving Averages.

Excellent post, commanderco. It seems so much simpler just to look at what price is doing rather than at what something else is telling you price is doing. Or might be doing. MAs cross, after all, because prices rise (or fall), not the other way around.

 

[ERA]

I see a lot of stress placed here on ma crossovers.
Personally I look more at the shape and direction of ma's particularly short term . My favourite is a 2 day moving average used when looking for major tops or bottoms.

What I look for is a violent change of direction. The last bottom in GBP/JPY was a classic where I used the signal from the 2 day average's violent change of direction to enter at 191.75.

 

[Old_Bob]

Can anyone comment on Moving Averages in the forex market?
I've traded using 10/20 smas and wondered if anyone had any tips
or advice on timeframes/strategy etc.

thanks

Saint

I don't like moving averages. They are lagging indcators. They give you a signal when the market has already made the biggest part of the move.

 

[josbarr]

from street smarts 20 day exponential MA used with a ADX above 30.
The underlying pair will bounce of the average.

 

[TheWolf]

I don't like moving averages. They are lagging indcators. They give you a signal when the market has already made the biggest part of the move.

Which indicators that use previous data isnt a lagging indicator?

 

[commanderco]

predictive indicators

Which indicators that use previous data isnt a lagging indicator?

A word about indicators, if I may.
The FOREX market gives you 3 pieces of information.... The High & Low in a 24hr period and a snapshot, referred to as the Close ( usually 5pm EST)
From these three numbers there is no end to the sheer genius of people to write code that produces colourful lines on charts..... this is an industry in itself.

However, if you wish to trade FOREX for a profit, never take your eye of the the 3 magic numbers.
They and they alone hold predictive qualities.
If you cannot see it, then you are not prepared for what lies ahead.

 

[TheWolf]

A word about indicators, if I may.
The FOREX market gives you 3 pieces of information.... The High & Low in a 24hr period and a snapshot, referred to as the Close ( usually 5pm EST)
From these three numbers there is no end to the sheer genius of people to write code that produces colourful lines on charts..... this is an industry in itself.

However, if you wish to trade FOREX for a profit, never take your eye of the the 3 magic numbers.
They and they alone hold predictive qualities.
If you cannot see it, then you are not prepared for what lies ahead.

Can you tell me more about this please? Why are these 3 numbers so important? How should I interprete them?

 

[commanderco]

Can you tell me more about this please? Why are these 3 numbers so important? How should I interprete them?

Firstly, and most importantly, these 3 numbers are all that you have.
All indicators are a manipulation of these 3 numbers.

In order to for me to tell you how to interpret them is the equivalent of me teaching you a foreign language..... I am afraid you will have to do the hard yards..... however here are some thoughts
for your consideration.

* Consider yesterday´s Close as todays Open. The range between these 2 points is where
the heavy traffic trades.

* Seperate volatility into volatility high & low, ie above & below the heavy traffic. These are the
battlegrounds where the bulls and bears struggle for supremacy.

* Learn "pivot points".... there is plenty of info on the net about this.

* Know where last weeks H & L lie.

* Imagine that you are a Fund Trader ..... you would have weekly, monthly & quarterly targets.

* Try to read your charts without any Indicators

* Remember that if all this seems hard & difficult that is because it is. However if you treat
this exercise as you would when learning a new language, you will find that the mist
before your eyes gradually begins to clear.

* Always remember that 5% of the people walk of with 100% of the money

 

[TheBramble]

* Consider yesterday´s Close as todays Open. The range between these 2 points is where the heavy traffic trades.

I may be misunderstanding you CC. If you're treating yesterday's Close as today's Open (i.e. same level) how can you have a range 'between these 2 points'? Or did you mean the range between the High and the Low of the last 24 hour snapshot?

 

[TheWolf]

I thought there were 4 numbers,

1.close
2.open
3.high
4.low

 

[commanderco]

I may be misunderstanding you CC. If you're treating yesterday's Close as today's Open (i.e. same level) how can you have a range 'between these 2 points'? Or did you mean the range between the High and the Low of the last 24 hour snapshot?

Hope this helps
H C L
today 82.93 82.85 82.27
yesterday 82.54 82.42 81.90



Upper volatilty = 82.93 - 82.85
Lower volatility = 82.42 - 82.27
Heavy Traffic = 82.85 - 82.42

Treat yesterday´s snapshot ( close) as today´s Open