moving average question, page-6

Moving averages are a lagging indicator that can work reasonably well in strongly trending markets, they are terrible in range bound markets and can give you many false signals if you are using a crossover entry/exit signal for example.

The simplicity of this use of MA attracts a lot of new entrants to TA, but when the market ranges they can get frustrated with all the false signals and it rattles their confidence in the system.

Some people get around this by choosing longer time frame charts like weekly or monthly and this generates less signals, if you find a currency or stock that trends very strongly in either direction this can also be a plus to filter out choppy price action.

I certainly don't use moving averages in this way as over time I have found them to be more useful as a gauge for trend strength/weakness and mean reversion.

If you want to find out what works for you just look at the way different technicians use MA in their work, also you can use a dummy account to paper trade your MA approach in real time.

If you are looking at MA data over the last year you have to keep in mind that the US markets have been trending very strongly, so when you look back over the last 18 months using a system, you may get a false sense of confidence,

but the market cant trend that strongly forever, and when it changes you need experience to know what to do with your method or system, so there is no substitute for live trading and analysis with small amounts so you get a feel for what you are doing.

You need an approach for bull markets, bear markets and ranging markets, and you need to be able to tell when they are transitioning.

This sounds quite straight forward, but it is one of the most difficult aspects of the market to master because you have to remain objective enough to read the market, and it can be difficult to remain objective when you have made a stack of money in the bull market, greed can easily take over, and then when the bear comes you go into denial and find yourself in a world of hurt.

This whole process takes a long time, a full bull/bear cycle from beginning to end can be between 5 and 8yrs as a rough average.