Time to get a grip with those averages and the why and what we are looking for
We know from observing and historical reference we are looking for the pivotal point of the price
This can be found by sma, in this instance 5 fits the bill nicely we know this by observing what price does at this moving average on an uptrend the bottom of the bar will be touching and in a downtrend the top of the bar will be touching.
If we shift the entry point up for an uptrend and shift down for a downtrend we are fulfilling the criteria of jesses plan for action.
For ages I couldn't work out why my entry point was flat. Every entry I tried under the original simple system went sideways this was because I was trying to enter a trade at the pivotal point not above or below it. very bad, not good and will scare you out the trade real quick as it is not acting as expected, a puzzle for me and many good members here tried in vain to help but to no avail it was not until I read one of Elders books that the penny dropped and the path was clear once more.
Here is a quote from that book that made all clear in my mind of where the price is and where it may go in the short term
Alexander Elder Entries & exits - visits to sixteen Trading Rooms 2006
"
Moving averages
Each price is a consensus of value at the moment of a trade. A moving average reflectsan average consensus of value in its time window If price is a snapshot,a moving average is a composite photograph it provides two important messages to traders .First,its slope identifies the direction of the publics mood. A rising moving average reflects growing optimism (bullish), while a falling MA reflects growing pessimism (bearish)
Another important role of MA is differentiating between value trades and greater fool theory.If you buy near the MA you're buying value. a trader who buys well above the MA is in effect saying -"i'm a fool, I'm overpaying, but I hope to to meet a greater fool down the road" There are few fools in the financial markets and a trader who keeps buying above value is not likely to win in the long run, he may get lucky once in a while, but buying near value is a much sensible strategy"
And bingo! the MA banding was born if the price moves into the value area, a position is taken in the market that takes advantage of the explosive movement caused by the sudden realisation that we have left value and a strong directional move is in our favour. we are now being swept along in the trade by the greater fools. the method is now complete.
Hey Lightning Why do people get stopped out so much ?
A good question, the why is contained in the above quote from elders book if the price is higher than the ma it will invariably come down to its pivotal point taking stops out as it runs.
You have now been warned of the dangers of incorrect entries, large wide stops ...the so called give the trade room to breath, which in code means "I haven't a clue where the correct entry is but I know its around abouts here somewhere" with this attitude to trading you are are going to blow your account over the long term.
Remember keep em tight - preserve capital - stay in the game.
That's it, I do hope you can follow it
Next up is FTSE, can I kick FTSE butt, you betcha ...join in next week for some FTSE action.
In the meantime any questions or comments ? i'm not going to be about much over the weekend so be patient and check back
![Thumbs up (y) (y)](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)