More On MAs
Rick and Alan,
My RT3 says the following:
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A moving average is a smoothing technique used to isolate the trend from short term price fluctuations. RealTick displays four types of moving averages: simple, autoregressive, linear weighted and exponential. The types differ primarily in how they treat older data.
Simple moving averages weight each of the terms in the average equally. The linear weighted moving average gives more importance to more recent prices. Both the simple and the linear weighted moving averages limit the price effect to the number of periods in the average.
The exponential gives more weight to recent prices but allows all data in the window to influence the average. Instead of a number of periods, the exponential uses a smoothing factor which can have any value between zero and one. The larger the smoothing factor the more influenced the average will be by more recent prices. If you want to relate the smoothing factor to the periods used in the standard moving average, set the factor equal to 2 divided by one plus the number of periods. Moving averages are usually based upon the close but can be based on other price series such as the midpoint.
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After playing around with the four different types and their variables -- mainly by overlaying a 60-day INTC daily chart with 50-day MA -- I found that the default EMA provided by my RT3 (with a smoothing factor of 0.04) seemed to be the most pertinent; that is, it seemed to touch a lot of the price pivot points. So that's what I've been using for 50-day MA on my daily charts. A little more trial-and-error fine-tuning might give better results, I don't know. I am just wondering if there's a widely-accepted standard used by successful professional traders.
Another thing I wonder about is: how many MAs to use? I know a few traders who use as many as five on a single daily chart (10, 20, 50, 100, 200), and others who use just one or two.
It seems to me that the best MAs to use would be the ones used by those who move the markets -- the better to get in sync with them and profit by their moves.
ig |
