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Technology Stocks : THQ,Inc. (THQI)
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To: Sigmund who wrote (3049)1/14/1998 3:06:00 PM
From: Raymond James Norris  Read Replies (2) of 14266
 
>>But what is there about a 21 day moving average that tells us something about investor psychology? Why would a 21 day moving average be more or less revealing than say a 22 or 20 day moving average. This is not at all intuitive to me. <<

If we are talking about exponential moving averages, the number of days used is not at all arbitrary. Per Dr. Elder, one's expoenintal moving average should be equal to half of the stock's cycle:

"A relatively short EMA is more sensitive to price changes - it allows you to catch new trends sooner. It also changes its direction more often and produces more whipsaws... A relatively long EMA leads to fewer whipsaws but misses turning points by a wider margin.

When computers first became available, traders crunched numbers to find the "best" moving averages for different markets. They found which MAs worked in the past - but it did not help them trade because markets kept changing.

It pays to tie an EMA length to a cycle. A moving average should be half the length of the dominant market cycle."

When you see people using a 13 EMA, its because they believe the length of the dominant market cycle is 26 days. A 200 day Moving Average works for the long term investors who want to ride major trends. The shorter ones are for investors that have a shorter time horizon.

>>Are you aware of any statistical studies that confirm the predictive power of MA's? I am willing to have my mind changed on this. <<

Just as the post before yours said, MAs have no predictive power. Only signs of support and weaknesses in a stock's direction: whether it be short, intermediate, or long term.

Hope this sheds some light on MAs for you.

Conservatively Yours,
Raymond J. Norris
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