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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: ig who wrote (540)	6/12/1999 7:36:00 AM
From: TraderAlan	Read Replies (1) \| Respond to of 18137

IG, <60-day INTC daily chart with 50-day MA> This is a little confusing. With this setting, you should only have 10 data points since it needs the first 50 bars to make the first computation. FWIW I use a 50 day EMA religiously on my dailies. I'm reposting two articles I wrote on Moving Average Rainbows. They're a general treatment of the advantages in using 5 or more MAs on a chart at the same time. ONE CAUTION: I only use these set-ups on daily charts. For intradays, I prefer to keep things much simpler: MA Rainbows I Moving averages provide highly intuitive feedback as they interact directly with price. Indicators placed in a separate lower graph force the eye to sift through large quantities of noise to identify usable information. While that analysis will produce powerful results, the filtering process also throws out important data. Plotted in the price pane, moving averages emit continuous "signal" without noise. Apply the convergence-divergence technical tool to this visual analysis. Apply the convergence-divergence technical tool to this visual analysis. Since price always moves toward or away from an underlying average, each new bar or candle uncovers characteristics of momentum, trend and time. And the skilled trader can access even more powerful information. Add multiple moving averages into the chart and a complete multi-time frame trend system appears. Tie multiple moving averages together through any general mathematical relationship. One classic combination utilizes 18, 50 and 150 periods. Note that each MA approximates three times the preceding one. This particular set also builds an effective framework to investigate and trade three distinct periods of trend: short, intermediate and long-term. Moving average sets create layers of convergence-divergence feedback. Instead of price alone moving toward or away from any average, the averages now move toward and away from each other. Whole trading systems can be designed that capitalize upon these relationships. The author's Dip Trip, Elder's Triple Screen and Raschke's 3-10 Divergence all capture elements of these complex interactions. But don't stop at just two or three averages. Trending stocks emit fractals of price movement unique for each issue. Measure one of these fingerprints by the depth a stock corrects after each impulse of a trend. Instead than using complex math to locate these important pivots, traders can construct a Moving Average Rainbow. MARs consist of major averages, from the shortest to the longest, all interacting on the same price chart. Rainbows reveal important and subtle relationships between price, time and trend. One of the most exciting discoveries uncovers how certain moving averages develop support and resistance behavior with other ones. This trait alone provides the trader with a powerful advantage over the competition. MA Rainbows II Moving Average Rainbows uncover complex and startling trend-time relationships. When price undergoes a sudden shift in direction, the ribbons twist and mark clear signposts for the volatility that follows. Each of the averages requires a different time period to absorb price change. This emits a broad range of rainbow patterns that have obvious predictive power. As the new trend evolves, MARs slowly invert themselves to accommodate the changing conditions. Time your positions to these visual inter-relationships. Execute swing trades when criss-cross MARs predict pivoting price movement. Once inversion completes, replace this strategy with a trend-following system that takes advantage of the new, convergent environment. Use MARs to cross-verify signals ringing in other trading systems. It's no coincidence when complex math relationships point to an entry price where a major moving average stands. The rainbows ease the trader's work through their visual simplicity and the "spectrum" analysis they provide. Don't ignore popular averages, such as the 20, 50 and 200 day SMAs when creating MARs. They provide an easy framework for quick digestion of a large number of stock charts. Even if these old war-horses aren't part of your system yet, watch them to measure the crowd you're trading against. Focus on the common belief that short-term trends won't violate the 20-day MA, while intermediate and long-term impulses find support at the 50 and 200 day MAs. The practice of technical analysis often lacks simplicity. One unfortunate charting bias seeks ever more complicated sets of math in order to predict price. On the contrary, many traders now earn their living using little more than simple inputs of price and volume, packaged with moving averages. These kings of the trader's toolbox provide an essential link between time, price and trend. And these natural building blocks tie together easily into powerful visual trading systems. Alan