Basing Trendlines off of MA's | Forex Factory

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Basing Trendlines off of MA's

  • #1
  • First Post: Dec 16, 2006 1:12pm Dec 16, 2006 1:12pm
Quick question -

Does anyone out there use chart patterns, trendlines, etc., but base them off of MA's? It's just a simple thought in my head to smoothe things out and perhaps make the patterns easier to see. Obviously you wouldn't use a 50 SMA, but perhaps a Hull MA period 3?

Just wondering if anyone has done this to any success or what everyones opinions are. TIA. Matt
  • #2
  • Dec 16, 2006 1:29pm Dec 16, 2006 1:29pm
Something to remember about MAs or any other indicator is that they follow the price. Price happens first, any calculation based on price happens second.

For this reason I watch price first, indicator second, and would probably not base a calculation on another calculation like a MA.

But that's just me. I'd be interested to hear if this is successful for anyone else.

AFF
FOREX = 21st century alchemy.
  • #3
  • Dec 16, 2006 1:57pm Dec 16, 2006 1:57pm
Yes I understand. I was just looking to get rid of market noise. Also, it's still using MA's in the same manner you would traditionally use MA's. It's smoothing out market action. Except in this method you don't need to wait for MA crossovers. That's just a waste of time IMO.

I'm trying to smoothe things out to see the overall trend more clearly. Not sure if it would be smart to base the MA off of the O, H, L, or C. (Hehe.)
This method might give us less false trendline break signals. Something to consider. Matt
  • #4
  • Dec 16, 2006 4:52pm Dec 16, 2006 4:52pm
Have you tried using trends on the CCI? that uses SMA and typical price in the calculations.
  • #5
  • Edited 5:10pm Dec 16, 2006 4:58pm | Edited 5:10pm
I hear you about MAs smoothing out the noise. I think there's an inherent risk in trying to pick highs and lows, though. I wasted a lot of time and bread trying to get my entries and exits closest to the reversal points.

I use EMA 8/13 cross as an entry signal, but not as an exit signal. On any time chart, once 8/13 cross on a reversal then almost invariably the pair will touch the 55 before reversing again or pushing through. I can time an exit or move a stop loss based on the 55.

One thing I do know, and that is on any given time chart, the price will not sustain any prolonged distance from the 8/13 EMAs. So things might look fine and dandy on the short term charts, but if there's a yawning gap between the pair and 8/13 on the longer term charts, then I can count on the pair and the EMA pulling the gap closed. Usually I split the difference.

Looking at the G/U 4 hour chart right now, I am counting on market opening correcting the 53 pip gap. I will go long for 20 on Sunday based on this chart, and then look for another entry.

I guess the thing I'm trying to say is that indicators are good for entry, but since they always lag the price, you'll probably always be behind if you use them for an exit. I watch for things like a big gap between price and 8/13 EMA to signal my exits, because I know how consistently these attract one another.

Cheers
AFF
FOREX = 21st century alchemy.
  • #6
  • Dec 17, 2006 12:47am Dec 17, 2006 12:47am
Quoting Markj
Have you tried using trends on the CCI? that uses SMA and typical price in the calculations.
No have not tried this. Are you referring to Woodies CCI? The CCI indicatator on GFT, commodity channel index, doesn't look very useful as it is a very volitile indicator. Not sure if that is the same thing you are refferring to.

I'm not necessarily looking for trends though. I'm just looking to smoothe out the market action to make the market easier to read.
  • #7
  • Dec 17, 2006 1:07am Dec 17, 2006 1:07am
Quoting afemi94ce
I hear you about MAs smoothing out the noise. I think there's an inherent risk in trying to pick highs and lows, though. I wasted a lot of time and bread trying to get my entries and exits closest to the reversal points.

I use EMA 8/13 cross as an entry signal, but not as an exit signal. On any time chart, once 8/13 cross on a reversal then almost invariably the pair will touch the 55 before reversing again or pushing through. I can time an exit or move a stop loss based on the 55.

One thing I do know, and that is on any given time chart, the price will not sustain any prolonged distance from the 8/13 EMAs. So things might look fine and dandy on the short term charts, but if there's a yawning gap between the pair and 8/13 on the longer term charts, then I can count on the pair and the EMA pulling the gap closed. Usually I split the difference.

Looking at the G/U 4 hour chart right now, I am counting on market opening correcting the 53 pip gap. I will go long for 20 on Sunday based on this chart, and then look for another entry.

I guess the thing I'm trying to say is that indicators are good for entry, but since they always lag the price, you'll probably always be behind if you use them for an exit. I watch for things like a big gap between price and 8/13 EMA to signal my exits, because I know how consistently these attract one another.

Cheers
AFF
I'm not necessarily trying to predict highs and lows or create an "always in" system that tells me when to exit the market. I'm just trying to make a way to use trend line, S/R, and channel trading systems easier. I hate all those, "is that a trendline break?" scenerios as you trade. I'm willing to sacrafice a little delay in my signal to give me more confirmation to the signal. Do you agree or disagree that using a HMA3 would actually be giving a stronger signal than using the volitile price action breaking a trendline? Matt
  • #8
  • Dec 17, 2006 3:44am Dec 17, 2006 3:44am
Quoting permanentjaun
I'm not necessarily trying to predict highs and lows or create an "always in" system that tells me when to exit the market. I'm just trying to make a way to use trend line, S/R, and channel trading systems easier.
Sure you can. In the end, that's what MA's do. They smooth price movements. It all goes back to statistics. The more data points you have, the less an outlier result will affect the average. If you're going to use it to base patterns and trend lines off of, I wouldn't go any higher than a 5 ema, as that will smooth price out too much and dilute its ability to show you highs and lows.

I think most traders who watch price enough naturally smooth it a bit in their head anyway by ignoring a big wick on one candle, for example.
  • #9
  • Last Post: Dec 17, 2006 5:20am Dec 17, 2006 5:20am
Do you agree or disagree that using a HMA3 would actually be giving a stronger signal than using the volitile price action breaking a trendline?

I think you should test drive it for yourself see how it works for you. There are always historical charts to measure it against to get some idea of how effective it might be.

I find it helpful to be aware of trend channels and possible breakouts, but I have a personal weakness: I form expectations that are hard to reverse when the pair diverges from those expectations. So I stick to trading what I see right this moment, and do not try to predict price action apart from its movement toward/away from the 8/13 EMAs.

AFF
FOREX = 21st century alchemy.
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