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Why Moving Average?

  • #21
  • Apr 17, 2010 6:17am Apr 17, 2010 6:17am
They are all equally useful and all equally useless. They are inventions of people trying to find a magic formula thinking that the more complicated they make it the closer they can get to profit.
  • #22
  • Apr 17, 2010 6:20am Apr 17, 2010 6:20am
All indicators are useful and useless at the same time.
It all depends on experience.
  • #23
  • Apr 17, 2010 6:24am Apr 17, 2010 6:24am
Quoting AceOfTrades
They are all equally useful and all equally useless. They are inventions of people trying to find a magic formula thinking that the more complicated they make it the closer they can get to profit.
Good one here. i can't agree more about keeping it simple and that's the purpose i intend to achieve with this thread.

i use MAs and MACD.

Of late, i read an article of late and that has got me thinking and asking questions upon questions.

Finding the answers will go a long way in helping my equity curve. And i also intend to start a thread based on the rules of my trading system. but before then, i have to know and i mean know what am talking about with full confidence.
  • #24
  • Apr 17, 2010 6:25am Apr 17, 2010 6:25am
I have proven myself.
I have no further need for trial and error.
I have no fruther need for education.

I have proven my worth with a 4.0 GRADE POINT AVERAGE.
Unless you want to pay for my college, be happy with my 4.0 GPA!
  • #25
  • Apr 17, 2010 6:28am Apr 17, 2010 6:28am
Quoting charlyher
I have proven myself.
I have no further need for trial and error.
I have no fruther need for education.

I have proven my worth with a 4.0 GRADE POINT AVERAGE.
Unless you want to pay for my college, be happy with my 4.0 GPA!
to whom?

do you have the answers to my questions?

i doubt it!
  • #26
  • Apr 17, 2010 6:29am Apr 17, 2010 6:29am
Quoting hefhem911
Hi everyone. I have been thinking about the reason(s) behind our use of MOVING AVERAGES. Why do we use the parameters we use etc...?

Why do you use SMA instead of EMA,SMMA or WMA? And what is a EMA or SMA ( I don't mean the full of the abreviation), actually...what does it do?
SMA is a simple moving average. If it is set for 200 then it simply finds the average price over the last 200 candles.

EMA is an exponential moving average. While the SMA gives each candle equal weight or importance, EMA gives additional weight to newer candles. Here is a link with a detailed explanation: http://stockcharts.com/school/doku.p...tial_moving_a1

SMMA is a smoothed moving average. It is essentially a moving average of a moving average. If you take a 80 smoothed and place it on the screen with a 160 exponential you will see they overlap each other perfectly.

Quote

why slow EMA, fast EMA and MACD SMA? Why is MACD not available in Fast and slow (SMA,SMMA or WMA)?

I think they are actually. There are several versions of MACD floating around here and other forums.

Quote
What are you tyring to achieve using SMA, EMA, WMA or even SMMA? What are these tools really designed for/to achieve etc...?

They are just filters. A way to place a visual clue on a chart to provide some insight into what the markets are doing. You can say "Price looks like it is going up." or you can place your favorite moving average on the chart and then you have a line in the sand so to speak. "If price moves above this line, price is no longer going down but is going up." This gives you a hard rule to your trading.

The value of the moving average is more determined by the personal preference of the trader than anything else. For example, I like to trade with an 89 smoothed which is exactly the same as a 178 exponential. Now really, is there much difference between a 178 ema and a 200 ema? Very little but the 89 smoothed fits me just fine.

Hope this is what you were looking for.
  • #27
  • Apr 17, 2010 6:31am Apr 17, 2010 6:31am
What is your IQ level?
What is your current Grade Point in school? 4.0? I doubt it.

MACD is convergence divergence.
You can play your reverse psychology on me.

HOwever, you are a loser and praying for answer.

And here it is.
MACD is use for comparing moving averages.
You take actions base upon moving averages converging or diverging.
If you still don't know that, then you need real education.
  • #28
  • Apr 17, 2010 6:32am Apr 17, 2010 6:32am
Quoting charlyher
MACD is moving average convergence divergence.
You don't know the purpose for MACD, then you need real education.
From wikipedia:

- moving average, also called rolling average, rolling mean or running average, is a type of finite impulse response filter used to analyze a set of data points by creating a series of averages of different subsets of the full data set.

- Convergence is the approach toward a definite value, a definite point, a common view or opinion, or toward a fixed or equilibrium state. In mathematics, it describes limiting behavior, particularly of an infinite sequence or series.

- In vector calculus, divergence is an operator that measures the magnitude of a vector field's source or sink at a given point, in terms of a signed scalar. More technically, the divergence represents the volume density of the outward flux of a vector field from an infinitesimal volume around a given point.

Hope this help
  • #29
  • Apr 17, 2010 6:38am Apr 17, 2010 6:38am
Quote
Hope this is what you were looking for.

At last someone of value!

Almost and you are getting me excited. thanks for the link.

so why does EMA gives additional weight to newer candles and what is/are the EFFECT(S)?

Quote
They are just filters. A way to place a visual clue on a chart to provide some insight into what the markets are doing.

I don't understand what you mean by JUST
  • #30
  • Apr 17, 2010 6:39am Apr 17, 2010 6:39am
SMMA (smoothed moving average) or Wilder's Moving average, is just another EMA with different period.

SMMA N period equals to EMA (2N-1) period

SMMA 10 = EMA 19
SMMA 14 = EMA 27
SMMA 80 = EMA 159
  • #31
  • Apr 17, 2010 6:41am Apr 17, 2010 6:41am
Quote
Hope this help

you are talking physics man
  • #32
  • Apr 17, 2010 6:46am Apr 17, 2010 6:46am
I suspect the designer is using the EMA's to get a slightly faster response and to place more emphasis of the latest data in the time series.

Consequentially, the histogram is made up from from 2 fairly noisy signals, so he's then using the less responsive SMA to filter out the noise.

I assume there must have been some degree of optimisation in the choice of moving average lengths, and in the type of moving averages employed. Putting this into a historical context he probably started off using SMA's, then found that the faster response of the EMA's did a better job at identifying acceleration much earlier.
  • #33
  • Apr 17, 2010 6:47am Apr 17, 2010 6:47am
Quoting hefhem911
At last someone of value!

Almost and you are getting me excited. thanks for the link.

so why does EMA gives additional weight to newer candles and what is/are the EFFECT(S)?



I don't understand what you mean by JUST
The effects with ema is a moving average line that responds quicker to rapid market movements. A good way to see this is to take a 100 sma, 100 smma, 100 ema and place them all on a chart in different colors. Find some point where there is decent price movement and watch how each responds.

Sorry, the just part was probably more of a personal opinion. It's more of how I see them being used.
  • #34
  • Apr 17, 2010 6:52am Apr 17, 2010 6:52am
Quoting magnumfreak
The effects with ema is a moving average line that responds quicker to rapid market movements. A good way to see this is to take a 100 sma, 100 smma, 100 ema and place them all on a chart in different colors. Find some point where there is decent price movement and watch how each responds.

Sorry, the just part was probably more of a personal opinion. It's more of how I see them being used.
THANKS.

About MACD, IS the fast and slowEMA smoothed by the SMA? and why?
  • #35
  • Apr 17, 2010 6:59am Apr 17, 2010 6:59am
what about time frames? how do you plot a 1Hr SMA on a 5min TF?
  • #36
  • Apr 17, 2010 7:07am Apr 17, 2010 7:07am
Quoting hefhem911
THANKS.

About MACD, IS the fast and slowEMA smoothed by the SMA? and why?
The DIFFERENCE between the fast and slow EMA's is smoothed by the SMA. As I explained previously, the difference between the EMA's is relatively noisy because EMA's are used, and therefore the resultant signal requires additional smoothing. Its just a compromise.

As for your timeframe question, a 10 period SMA on a 1 hour chart is based on the last 10 hours data. So if you want the same thing on a 5 minute chart, you'd use a 120 period SMA (120 5 minute bars are equal to 10 hours)

This approach works for SMA's, but of course it wont work with EMA's, there'll be small differences between the two approaches.

Stick some MA's on a chart, and you'll see.
  • #37
  • Apr 17, 2010 7:16am Apr 17, 2010 7:16am
Quoting Razzle
The DIFFERENCE between the fast and slow EMA's is smoothed by the SMA. As I explained previously, the difference between the EMA's is relatively noisy because EMA's are used, and therefore the resultant signal requires additional smoothing. Its just a compromise.

As for your timeframe question, a 10 period SMA on a 1 hour chart is based on the last 10 hours data. So if you want the same thing on a 5 minute chart, you'd use a 120 period SMA (120 5 minute bars are equal to 10 hours)

This approach works for SMA's, but of course it wont work with...
just tried what you said and it worked only with a 6pip diff but..... it worked.

Assuming you use a 12,26,1 MACD, are you smoothing the 12 and 26EMA with 1SMA?
  • #38
  • Apr 17, 2010 7:26am Apr 17, 2010 7:26am
MAs are a particular form of "smoothing functions" - http://en.wikipedia.org/wiki/Smoothing

There are many more types of function which do the same thing, with various pros/cons each. You should choose the one which is best suited for your dataset.

Unfortunatly, in retail forex SMA and EMA are typically the only one used, even if for example simple MA has been shown for a long time to be quite poor performing. EMAs are better, but they are certainly not state of the art.

A better EMA is this: http://www.olsen.ch/fileadmin/Public...7-emaOfEma.pdf Note that the paper was written in 1991 (and made public in 2000). This shows just how behind current research retail forex really is.
  • #39
  • Apr 17, 2010 7:26am Apr 17, 2010 7:26am
Quoting hefhem911
just tried what you said and it worked only with a 6pip diff but..... it worked.

Assuming you use a 12,26,1 MACD, are you smoothing the 12 and 26EMA with 1SMA?
Missing bars on the 5 minute timeframe might account for the 6 pip difference, and you'll ocassionally find with some brokers that the highs and lows taken from the 5 minute timeframe dont necessarily match up with the highs and lows on the wicks of candles in the longer timeframes !, but its usually near enough.

Regarding the MACD, yes, thats exactly right. You are smothing the difference between the 12 and the 26 EMA. So in an uptrend, the 12 will be above the 26, and the difference between them will be positive, and in a downtrend, the 12 will be below the 26, and the difference will be negative. So this difference is plotted as the raw MACD histogram. When the histogram changes from positive to negative, its the equivelent of a moving average crossover between the 12 and the 26.

The SMA is applied to that histogram and it smooths things out a little.
  • #40
  • Edited 10:16am Apr 17, 2010 7:41am | Edited 10:16am
Quoting Razzle
Missing bars on the 5 minute timeframe might account for the 6 pip difference, and you'll ocassionally find with some brokers that the highs and lows taken from the 5 minute timeframe dont necessarily match up with the highs and lows on the wicks of candles in the longer timeframes !, but its usually near enough.

Regarding the MACD, yes, thats exactly right. You are smothing the difference between the 12 and the 26 EMA. So in an uptrend, the 12 will be above the 26, and the difference between them will be positive, and in a downtrend, the 12...
I think i have gotten answers (though not directly) to most of my questions. I want to thank magnumfreak, razzle,sangmane and adal for their efforts and time. with all these and others that i have already known. i should be able to start a thread maybe next week based on my scalping trading system.

i will like you guys to also contribute to the thread when its started.

Once again, thank you!
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