Technical Analysis Course Describes Moving Averages
Many models have a foundation that is on a system of moving averages . Some are difficult and include many unknowns. Most models draw the bead on trend directions after it is manifested and as long as the trend doesn’t change will keep traders in this market . Some moving averages try to forsee trend changes . These ones can be lucrative to a good trader that can initiate a position that is recommended and can underlie more losing than winning trades .
A technical analysis course shows that the thought behind moving averages ( MA ) is figuring when the price direction differs from recent price averages. As long as the price average is lower than the current price of say the last ten, twenty or one hundred days the trend spins onwards . The average most often observed is the MA of closing prices for 10 days . The method’s benefit is that every day’s price is given equal weight . The MA assumes that traders put as much importance on the prices of last week as yesterday’s prices .
This does not conform to reality . A short term trader’s horizon is extremely limited . Commodity prices do vibrate more rapidly than the prices of most other investment forms , so, shorter series usually will do the best.
An ideal MA should :
1) quickly see a big turn in a price trend and not days later
2) the MA plot shouldn’t be so close to the daily prices plots that we would be whip-sawed in consolidation and minor swings .
3) this MA plot must be malleable to the volatility of the specific commodity.
4) if the commodity locks limit the MA plot should be responsive .
This approaches problem is that MA lines can be too lazy to show a reversal . Usually , the trading decisions of moving average technicians by changes that occur in the price market based on the line of MA. As the MA is more sensitive the smaller the amount and degree of the advance differential and the larger the number of sell and buy points , which leads to a lot of whip-saw and some small losses as learned in a technical analysis course.
You will find, as the time span is shorter, the more a trend termination of a reversal can be sensed by the MA. New trends will be acted on earlier and getting established doesn’t take as much time. Yet , the sensitivity is paid for by traders because, and to repeat , the shorter the moving average the greater is the number of trades that will be made with the addition of greater commissions to the whip-saw losses .
Therefore , moving averages has a delay in showing price trend turns. The delay is usually great than that which occurs when than what occurs with point and figure charting, P&L charting, and the simple charts. This position’s main benefit is that the each trend of substance has the user automatically put on board (as do all trend following systems .) More information like this can be obtained from a technical analysis course.