Does Moving average actually act as moving S/R ??

On a daily chart I see the price bounce off 100 SMA at few points , but isn't it coincidence?? When you draw a line accross the candles there will be some points the will touch it to look as S/R ?? Or maybe you use MA with other settings?

Yes they can as long as you find the MA's that many other traders are also using.

Like everything else in this business, it is self fullfilling. Moving Averages, Fibonacci levels, Pivot Points, Gartely Patterns...all of it. If enough traders use them in a similar manner they will all take similar action in the same general price area, thus causing a movement in prices.

Those of us watching the movement in these areas will say "Ah HAH!! There it is, PROOF that the moving average or (pick your favorite) acts as support/resistance level. The arugment can be made that these levels are genuine and tradable...the argument can also be made that in and of themselves they have absolutely zero predictive value.

Bottom line is it doesn't really matter. Pick your poison, observe the patterns that emerge. Learn to intprete the "mood" of the market by the price patterns that result. You are NOT trading lines, or mathematical formulas, you are trading (either with or against) the accumulation of all the other traders out there making the same decisions as you are.

If a 100 period moving average helps you trade better...great. But see it for what it is...a mathematical formula based on a given set of PAST price data. Whether or not it has any relavence to what YOU do in the "now" moment is up to you.

Personally I trade using a few moving averages, mainly to get a direction of the market across a few different timeframes without having to have a number of charts open for the same pair. I do find a few useful for trading off of and using them to help manage my trades.

Consider them a tool. All you see around you is basically a tool for you to feed on. You either use it or not but at the end of the day whats important is that you benefit from your trading principles and be disciplined enough to follow them.

Great post and a great blurb in the about me section of your profile!!!!

it does as many times as it don't...so to summarize it has no underlying value as a predictive tool.

good post.

But remember...when you are aware of the reasons of why the price might turn at these levels you won't need the moving average in the first place

Personally Discipline has been the biggest factor.

Cheers endroute!

Four possible reasons why any tool(s) (indicators, line studies, ...) can be made to work profitably:

1. Self-fulfilling prophecy, if enough heavyweight traders use them in a similar way (as explained in the earlier posts). I posted my thoughts on 'visibility' here.

2. They capture some underlying aspect of price behavior, or mass psychology. Example: Pitchforks: prices eventually tend to return to a mean ('fair value').

3. They provide the trader with his own familiar, visual points of reference, or 'road map', around which he further analyzes price action.

4. They highlight some aspect of price behavior that isn't immediately obvious from viewing a naked chart. Oscillator divergences are a possible example.

No doubt there are others.

@gspajon: very nice post, IMHO.

Sometimes it is pure coincidence that price has bounced off a moving avererage coinciding with the fact that prior to the bounce, price was considered relatively cheap for a buy or expensive for a sell at that price - nothing to do with the moving average at all, but price itself. The MA was at the right place at the right time.

I think one as to be careful when talking about the self-fulfilling prophecy (crowd behaviour) because it is the well funded pro traders that use the crowd to their advantage and will often initiate turning points in price behaviour where the crowd then follows. The pros will initiate a move based on price and have a feel of what their competition (other well funded pro traders) will do. So when you see price reverse at a level where an MA happens to be located it is more likely to do with price itself as being cheap or expensive and where other large orders are stacked - rather than a self fulfilling prophecy of the crowd jumping in. The pro's initiate the move seemingly at the location of the MA (Coincidence) and use the crowd as liquidity and momentum which moves price up further after the initial bounce at the location of the MA.

hey brb...... it would take some deep pockets to turn the market at any one point, be it a particular ma or s/r lines.... so odds are it is most often a coincidence..... occasionally some currency might be managed intensely, chf comes to mind, at certain points.....

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one of the blessings and curses of being able to code indepth, is it gives the ability in seconds to let the past answer such questions....

does the 100 sma symbolize support/resistance.... or the 10, 20, 50....

or perhaps, how many times is the daily r1 breached.... s1, r2, daily pivot..... if so, by how many pips.....

or perhaps, what is the average length of the zigzag per symbol per timeframe....

//----

very often what clearly looks so terribly random is actually well organized.....

and what looks so clearly well organized is entirely random.....h

You have to remember that the MA is giving you a graphical representation of where price has been in the past. Plot absolutely ANY moving average value on a chart, and the price will appear to bounce off it an uncanny number of times. But the MA is lagging......it tells you something after the fact. So for me personally it is more accurate to say that the MA (any MA) bounces off price rather than price bouncing off the MA. The price gets to point X,Y, or Z before the MA gets there, and not the other way around. So my own personal view is that price doesn't bounce off a 100 MA, even when it appears to, it hasn't.

With that being said, whether price appears to bounce off an MA, actually does bounce off it, or categorically doesn't bounce off it, is all largely irrelevant. The only thing that matters is whether you are comfortable and confident using the MA as a reason to enter and/or exit a trade. If an MA gives you the guts to get in to a trade, and your confidence in your reasons turns a profit for you in the long term, you've found your own profitable system. And whether there is any hard statistical proof to support MA crosses/bounces/loop-the-loops or not, makes no difference because you've found a way that works for you and makes you money.

As far as I know, there is no statistical evidence to suggest that any indicator, price pattern or candle formation results in better than 50/50 odds of giving correct signals. And yet tens of thousands of traders are using all sorts of variations on systems, indicators and combinations to successfully and consistently make money, day in and day out, and ten times as many using the same things to lose money day in and day out. That says to me that the system or indicator on it's own is neither here nor there. The difference lies with the way you as an individual use the indicator.

If you've found that a 100MA bounce works for you, I would say stick with it and make some money.

Man, personally I've tried trading MA price bouncing. The problem with bounces is the price tends to cross the MA before bouncing, if it even does. The trick is using the right MA in the right TF. I've also tested five min scalping versions of MA bounce by I think; Phillip Nel and the Dance system, never works for me, but it does work for them, many have built systems around it so I say go with it, but have something else such as pivot points and Fibs to take into account as well. The more information you have at your disposal that allows you to see how others might view the chart the more likely you are to enter trades in the direction of the trend.


Remember that the faster the time frame, the weaker the MA as a line of S&R.


I've found one of the best measures of S&R when it comes to an MA is the Ichimoku Kijun sen. Right down to the smallest TFs price will usually respect it, if even for only a little while. It is the highest high and lowest low /2 for the past 26 periods. Graphically this causes it to flatten out and serve as a nice visual reminder to wait and see what price does as it reaches the line. In my experience at least.


The Kumo cloud on higher TFs is very reliable as a dynamic S&R. Once you get down to the m5 and m1 charts though, price can really blow right through the cloud if you are near a pivot point or a fib and not paying attention. Another interesting thing about the Kumo on higher TFs. m15-h4, The Kumo often engulfs the daily pivot point, which is a great reminder to keep you out of the mire until price decides to take a clear direction.

Anything can act as S/R if enough people believe it is S/R.

"Self fulling prophecy" is a half truth at best IMNVHO.

they work but if too many traders use them they dont work. and thats all it is, an average.you should definitely consider looking else where for support and resistance.(price action)

you will be amazined at what you find.


-Eme

IMHO - Understanding the strengths and limitations of MAs is essential to any trader. Over the period a MA is calculated on, price is going to be observed as having moved around the MA line. Why? It is these very prices or data that were used to calculate it. The MA is defined by the range of the data it is calculated, regardless of the type of MA.

But is this the best use of an MA, to gauge S/R? It will be completely coincidental that an actual price is the same as the calculated MA.

Definitively, price action is what you need for trade. After few years of practice, you begin to memorize where a support is found usually, in wich conditions and how should look a trade setup. At least this is my case. Practice is one of the key.to succes in trading. Without enough practice, you will end blowing your account because you aren't confident on your decisions and that give birth to emotions, unpatience and until a losing trade is just a little step.
In a complex world like trading, we shall make some routes to advance. I am refering on practice, because this way you develop your own trading pattern. With "trading pattern" I am refering to your trading behaviour, where to enter, wich conditions are met, in wich environment you like to trade, your apetit for risk, the way you manage open trades, how you feel when a lose happen, how you feel when you win (because when you lose you feel to revenge and in some cases this burry you even deeper)

So using a moving average is usefull like the little aid tires on the bike until you learn how to drive it

Personally I use multiple moving averages to inform others about opportunities because even if I have knowledge about how to read Market Participants , they need these guides to better understand and to grow their confidence. So if I post a simple chart, they will think the entry is random, they will not believe, but when I post a Moving Average, things get better because people believe (colective effect) that Moving Average is a good trading indicator and shall be trusted.

So, Moving Average is good as indicator for market participants sentiment, good for spoting key dinamic support\resistance, but don t have too higher expectations from them. As I said in my recent thread, "There is no Magic Moving Average" once you learn how to read the chart you will see that Moving average become optional to better ilustrate your understanding of the Market, what your mind contain when you are looking at the chart, but is not a "must".

Remebmer, Moving Average is derived from Price, not viceversa

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