Moving Averages:
Intraday:
Most of the present day use of Moving Averages (MA) for closing prices stems from Richard Donchian's concepts presented in the 1950's. However, the better method to use is Moving Average Channels (MAC) which is comprised of two moving averages based on the highs and lows. The reason this method works better is that it is geared toward the ideas of support and resistance. Typically resistance is found near the previous high and support near the previous low. Thus, when the price falls below or rises above that channel, one has a bearish or bullish indication, accordingly. This method can actually be used on intraday charts for trading quite profitably. One essetnially buys when the bar clears the channels, and sells when it falls below it.
However, it has been my experience that if one uses basic trendlines (see previous posts) you actually get better performance, since the MAC method is similar to the Parabolic SAR (Stop and Reversal) which assumes you are either long or short, but never out of the market.
End of Day:
The most common use of Moving Averages is for end of day analysis looking for crossovers of two or more moving averages. The most commonly used ones are 5, 9, 14, 26, 50 and 200 days (or 1,3,5,10 and 39 period, as a period generally = 5 days). Now the value of using moving averages is a little questionable, as it is so rare as to probably coincidental that a single combination of Moving Averages, say 7 and 26, will indicate BOTH the entry and exit. And it is never the same indication across sectors or even sub-industries. I will grant that MA's are very useful as confirming inicators against others that do not utilize price data, like Chaikin Volume volatility.
Having said all that, the best use of moving averages is generally for near to mid term entry and exits. The 200 day MA is absolutely worthless in my opinion unless you are planning on only looking at the chart once a year or so. If you trade using MA's, then the style of trading you do determines which period is the best to use. If you are only going to trade once a month or so, then track the 5 and 14 day averages. When the 5 day crosses below the 14 day, sell, and when they cross above, buy.
But again, if one sees trendlines connecting the significant low on an uptrend, and the linear highs on a downtrend, it will be about more profitable on average. The reason is that trendlining will catch the horizontal corrections and define an exit for you well before the MA crossover will.
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