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Why exactly do EMA crossover systems not work?

  • #21
  • Feb 10, 2007 12:57pm Feb 10, 2007 12:57pm
Quoting Darkstar
The more interesting question is, why "Should" EMAs work?
Great question Darkstar. Answer: They should work for the same reason they shouldn't work.
  • #22
  • Feb 10, 2007 1:04pm Feb 10, 2007 1:04pm
Quoting Keys
The reason crossovers don't always work is because you are only looking at 2 or 3 MAs. What if the MAs you are looking at signal a buy and another trader using different MAs sees a sell? One of you will be wrong. I find it more useful to look at many MAs like GuppyMMA and look for the squeeze, not the cross over. When there is a MMA squeeze, many traders looking at different MAs are all on the same page.
Absolutely... and you can see what scalpers, traders and investors are doing in the market... LoL
  • #23
  • Feb 10, 2007 2:39pm Feb 10, 2007 2:39pm
Quoting Turveyd
MA's work for sure, try a 5min chart, 288SMA (24hour) GBBUSD, notice how twice the price has bounced lower from this MA.

I also recently using a EMA 4 , 9 cross on a 1min chart, when I think it's Long time I don't go long till this crosses up, reduces my impatient trades that then get stopped out.

Ofcourse wip sawed totally, using ema 4,9 as a system on it's own.

Thats why I also use :-

1min, EMA 4, EMA 9, SMA 30
2min, SMA 288, SMA 144, SMA 24

To base my trades around.

What do you use as trade entry signals? This system seems EXTREMELY interesting to me.
I am addicted to chaos. That's why I trade forex.
  • #24
  • Feb 10, 2007 3:23pm Feb 10, 2007 3:23pm
Quoting StockKJay

EDIT: You say that they do not work because they have nothing to do with the future... do you have a tool that tells 80% of the time what the future will do?

Ye please ...... I want that indicator that 80% of the time predicts the future!

I have never seen an indicator that did this! If there is something out there that does this .... please please let me have it! Until that happens I also think M. averages are as good a indicator as any indicator! IMO ...

I forgot SolarWind/Fisher Jurik are perfect in backtests ....... they do predict the future before the MA's but are wrong many/most of the time? IMO


But seriousLY , I am looking for a better indicator [IF ONE EXISTS] for future direction if someone can share one with me! IMO
  • #25
  • Feb 10, 2007 3:45pm Feb 10, 2007 3:45pm
141 pips here using an EA from here. The future - I haven't got a clue!
Do not focus on making money; focus on protecting what you have.
  • #26
  • Feb 10, 2007 4:31pm Feb 10, 2007 4:31pm
bago method 5/12 ema cross works good for me on the 1 hr and 15 min charts on gbp/usd also eur/usd making many pips on this method !!!!!
  • #27
  • Feb 10, 2007 6:21pm Feb 10, 2007 6:21pm
Lots of great posts. I'm sold on the idea of Price Action as taught by many including James16's great info. That said, some of his models were the first to introduce me to the idea i am comfortable with and that is watching price action on/around moving averages. Now just "what" moving averages could be discussed until the end of time. . . which is why . . .

I also like the idea of what Guppy has taught in his GMMA videos/teachings. And while i don't have all the MMAs up on my charts i will, at times, utilize multiples of 12s such as 12/24/48/96/144/288 in some combination on shorter time frames under 1 hour. . .

Coupled with what Raghee and McRae teach in their respective "Wave" or "Channel" MA trading methods i've found what works for me. And as many have already stated, that is really the bottom line for any of us. It's not how we get the pips in the bank, but that we get'em.

One of the main reasons i come to FF each day and read and study is that there are nuggets of wisdom found in nearly every thread. Much of which, at first reading might not "fit" with my way of looking at analysis or trading, but come back to that thread after a while, do a refresh-re-read??.. and maybe what was once hidden in fog is shinning brightly on a clear day.

Cheers,
Thom
  • #28
  • Feb 10, 2007 8:26pm Feb 10, 2007 8:26pm
I was going to post another negative schmuch response.

But instead will say that post#2 by FXEZ should be copied into every MA thread here in FF.

And I second what Craig in post#7 said ..

"They don't work because past averages have nothing to do with future averages".

Wise words both.

Now that doesn't mean some might not be profitably using them but then MM and "other" indicators are combined. How they can be predictive more than a coin flip is beyond me.

If still believe MA's have much value, do yourself a favor and go to www.samseiden.com I have no connection to him whatsoever. He is a trader and contributor to trading magazines. Read the article "Trade What is Real, Not What You Feel.
  • #29
  • Feb 10, 2007 9:07pm Feb 10, 2007 9:07pm
hey aicccia..... appears you got some pretty good answers so far but allow me to toss in a few things.....

what makes ma's tough to use in the forex is the almost daily market moving news.... people tend to use short periods and it's those short periods that often are beat to death ....

longer period ma's often will stand but require a laidback personality.... many traders by nature are not laidback but more cutting edge excitement types....

ema's inherently lag price.... there are other ways to view the relationship of ma's and price..... if the price closes above the 60 day ma for instance, wasn't the ma there first.... in that sense it is a leading indicator.....

even lagging indicators can be of high value...... ma's are my mainstay, but i'll be the first to admit , when they work they really really work and when they don't they really really don't....h
to trade and code, keep both simple... no call to impress....h
  • #30
  • Feb 10, 2007 9:47pm Feb 10, 2007 9:47pm
Quoting hayseed

ema's inherently lag price.... there are other ways to view the relationship of ma's and price..... if the price closes above the 60 day ma for instance, wasn't the ma there first.... in that sense it is a leading indicator.....
You can draw a line on a chart at any point and it will be there before the price gets there. Does that make it leading.

Nothing leads price. I can't believe this simple idea is so hard to grasp. Traders use all kinds of indicators to gain a higher level of probability and "try" to predict where price is going but nothing gets there in advance. Price goes where it wants. It doesn't go somewhere because a 8 period MA is somehwere on a chart and then the next time go where a 33 period MA is and the next time.... come on.

If a money center bank/large hedge fund/major G7 country wants to move a currency to a certain level, then yes it will go there, at least for the shortterm. But us small guys will never know when that next happens, until after the fact.
  • #31
  • Feb 10, 2007 10:54pm Feb 10, 2007 10:54pm
Quoting SunTrader
It doesn't go somewhere because a 8 period MA is somehwere on a chart and then the next time go where a 33 period MA is and the next time.... come on.
.
SunTrader, you are right about that. However, I do not know if anyone trades MAs because they think that way. By which I mean they think that THAT particular MA has something to do with the price going up. Nor do I think that individuals think that it is an individual MA holding a price. I have seen 100, 200 SMA just get brushed by on charts without a blink. It doesnt really matter that they are there. Though to my point, if you look at a combination of MAs, lets just take an earlier example of 5/12. You will notice that in a tight range of say 60 pips, this system on a 1hr chart will give you 3,4 bad trades. Though, you will also notice that when the market moves 170 pips in one direction... this system will also give that move to you. So long as you manage your account properly, 3 or 4 x 20 pip loss on each = 80 pips. Getting just half of the 170 pip move already = BE on past 5 trades. You are already aware of this though.

You have found a decent system, likely with better indicators than MAs. AND.. you probably tried MAs and didnt like them. Though that is just a perspective.

The MAs, like any *system*, has many many flaws. Price does not move or react to it, though you can still use them as an excuse if you will to get into the market. The only thing I believe that price actually reacts to are resistance levels where there are option barriers perhaps. These are hard to spot unless you have a good heads up in the game or some good news information.

To each his own though, all that matters is the $$.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #32
  • Feb 11, 2007 3:14am Feb 11, 2007 3:14am
"How they can be predictive more than a coin flip is beyond me."

This quote by Suntrader is key. To take it a step further -any indicator we use (MA's,Stochs,candle/price patterns, etc.) is ultimately as predictive as a coin flip. Having said that, the key to profitability can only be found in specific areas of the traders methodology. Knowing the right direction 80% of the time is NOT one of those areas. Most people struggle with this concept... this explains why the recent thread called Pouria System was flooded with hundreds of views within an hour of being posted. The author claimed a 98% hit rate on a primitive MA cross method with an MACD filter. (not back or forward tested obviously) When they saw the '98%' it was all over.

I'm not bashing any method or approach... MA's are as good a tool as the most expensive indicator money can buy. They both have a 50/50 chance of being right.

MM
  • #33
  • Feb 11, 2007 8:03am Feb 11, 2007 8:03am
hey suntrader.... we are looking at the same thing just seeing it differently.... thats okay with me....


as far as lines drawn on a chart , isn't that the very basis of pivot lines , murray math, fibonccia, price channels, support/resistance and such ....... lines that are predrawn before price reaches that point.... and of course there are people that believe such lines are just hocus pocus.....

price and ma's entertwine..... ma's can be used for an edge if properly applied..... ma's work well in markets where news is scarce, stocks, commodities and such ...... but in volitale markets such as forex they can be difficult ...... with almost daily news, it's easy to get shaken out and loose confidence , esp if we use short periods.........h
to trade and code, keep both simple... no call to impress....h
  • #34
  • Feb 11, 2007 8:50am Feb 11, 2007 8:50am
Quoting mr.marketz
"How they can be predictive more than a coin flip is beyond me."

This quote by Suntrader is key. To take it a step further -any indicator we use (MA's,Stochs,candle/price patterns, etc.) is ultimately as predictive as a coin flip. Having said that, the key to profitability can only be found in specific areas of the traders methodology. Knowing the right direction 80% of the time is NOT one of those areas. Most people struggle with this concept... this explains why the recent thread called Pouria System was flooded with hundreds of views within an hour of being posted. The author claimed a 98% hit rate on a primitive MA cross method with an MACD filter. (not back or forward tested obviously) When they saw the '98%' it was all over.

I'm not bashing any method or approach... MA's are as good a tool as the most expensive indicator money can buy. They both have a 50/50 chance of being right.

MM
As one of the hundreds, it didn't look bad to me. when someone says something works, you check it. if it doesn't, you see why not and then so on.
What you guys are arguing can be said for chart patterns too. head and shoulders, rounded bottom, pennants, etc. Ignoring trends and supply vs demand of course.
What makes it all work? Everyones looking at and doing the same thing. I can find a perfect H&S and other factors in a stock and buy it. won't mean a thing if I'm the only print on the time and sales. People as far back as Dow himself figured out it's not all random.

MY big complaint about EMA's.

When the lines aren't smooth, and the crossover reverses at the second they're about to cross. Being discretionary I'm filtering out everything that's not perfect and checking that out, use some of them as continuation patterns. I hear there's a new formula floating around that lets you anticipate MA crossovers beforehand instead of relying solely on a lagging indicator. Could be promising. But so far, not all 5 crossing the 10EMA's on short term charts aren't a waste of time.

I may check out WMA's as another post suggested. There is another spot on that chart that seems to have a good crossover.....congestion seems to be a big no no. I have two sets of indicators btw, they both seem to do the exact same thing except RSI's.
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  • #35
  • Feb 11, 2007 11:55am Feb 11, 2007 11:55am
Techno,

"What you guys are arguing can be said for chart patterns too. head and shoulders, rounded bottom, pennants, etc. "


Right on the money. Equally as funny is when someone starts getting fascinated with 'trading naked'. As if it was more honorable or something. Give me a break. Everyone has their set of indicators - whatever they may be, and these indicators have a 50/50 chance of being right. A book called "Fooled by Randomness" discusses the idea of how we mere mortals trick our selves into thinking that it's our study of the markets that generates our profit. Not so. The odds of seeing the future of the next market swing is always 50/50 and can never be 80% or 98%. Regardless of what indicators you may be using.
  • #36
  • Feb 11, 2007 12:54pm Feb 11, 2007 12:54pm
Quoting mr.marketz
Techno,

"What you guys are arguing can be said for chart patterns too. head and shoulders, rounded bottom, pennants, etc. "


Right on the money. Equally as funny is when someone starts getting fascinated with 'trading naked'. As if it was more honorable or something. Give me a break. Everyone has their set of indicators - whatever they may be, and these indicators have a 50/50 chance of being right. A book called "Fooled by Randomness" discusses the idea of how we mere mortals trick our selves into thinking that it's our study of the markets that generates our profit. Not so. The odds of seeing the future of the next market swing is always 50/50 and can never be 80% or 98%. Regardless of what indicators you may be using.
Just out of curiosity, if the markets are completely random and then you have to account for transaction costs, what exactly are you doing here? Gambling?
  • #37
  • Feb 11, 2007 1:44pm Feb 11, 2007 1:44pm
Jamie Gold made 12 million in about 2 weeks gambling in poker. Gambling is just as good as any other job, you just need to know when to gamble and to what extent to gamble. People make it their lifes work. Are the odds good enough to risk the money is what they say... or is it getting good odds on your money?

Perhaps a good MA system is equivalant to pocket 6s. Even pocket 6s can beat pocket As. You just need things to go your way a little more. Stick with me here... I am rambling.

You occasionally hear about money management firm traders losing 1 billion dollars. Read this article if you havent read about Hunter. http://www.slate.com/id/2150241 . JP Morgan trader losing $250million in 1 day. You have to figure these individuals trade EXTREMELY tight (poker term), they will only play premium setups such as the QQ, KK, AA, AK. These folks dont always come out the winner.

I didnt make any valid points at all... I understand that.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #38
  • Feb 11, 2007 2:26pm Feb 11, 2007 2:26pm
Quoting StockKJay

I didnt make any valid points at all... I understand that.
No argument here.
  • #39
  • Feb 11, 2007 2:45pm Feb 11, 2007 2:45pm
Quoting SunTrader
No argument here.
Thanks for your agreement. : Have a good week trading .... whatever system it is that you trade.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #40
  • Feb 11, 2007 3:17pm Feb 11, 2007 3:17pm
And to think that I actually thought, back in the early days of the Public Web, that the wars of TA vs FA vs PA were doomed.

Traders now have instantaneous access to what is going on (more particularly TA and FA , but via forums such as this, PA also) and yet Traders Still {generally} fall into the same three camps where discussion is met with Death by Flame.

It Must be in the Genes. (Jeans for those that are winning. AND I Bet {yep, gambling} that there are Still Traders in all 3 Camps that are Winning.)

Why you ask?
Because all 3 Camps have their own merit and take Study & Practice to Master.

Just because another Trader resides in another Camp does not {neccessarily} mean he/she is not earning healthy gains.
please note that I said Earning, not by luck.
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