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Strategies & Market Trends : Technical Analysis - Beginners -- Ignore unavailable to you. Want to Upgrade?

To: Terry Mitchell who wrote (7817)	1/16/1998 12:57:00 PM
From: David R. Evans	Respond to of 12039

Hello Terry, The type of MA you use is really personal preference. The best way to decide is put a few of them on the chart and see which ones you like best. I use simple with Dahl because I'm not trying to get out as fast as I can when I use it. In fact, when you use Dahl it's the opposite. You are using Dahl to Stay in as long as possible. Again, it's personal preference. I use EMA's on most of my indicators. I know Andy likes weighted better, and I'm sure there are others out there that would rather use Variable. I think the important thing is to stay consistent with whatever you use. Say you are using a 5 - 40 SMA Xover as your system. Now you got a buy signal a few weeks ago and sure enough your stock has moved up and made you money. Now you are getting itchy to sell BUT your 5-40 SMA Xover is still long. What do you do? I would recommend you STAY LONG until your trusted system tells you otherwise. I would NOT SUGGEST you change the MA's to Exponential or Weighted, or Variable just to get a sell signal. Why? Well, even if it turned out to be a good time to sell what did you learn? Did you learn to trust your system? Did you help build confidence in your battle with EMOTION? Did you move any closer to becoming a Consistant trader? You will answer the above questions based on what you want to hear BUT I would answer then with one word, NO! I hope I answered the question for you and it's clear in your mind. I know I do tend to wonder off a little BUT that's because there are many times when one answer is not enough. Many times a simple yes or no confuses the issue even more. Flexibility is good and a strong asset BUT it's no easy task explaining. Dave Evans

To: Terry Mitchell who wrote (7817)	1/16/1998 1:27:00 PM
From: Loren	Respond to of 12039

Terry - Dave is right about personal preference when choosing the right type of MA for you. However, when choosing, you might want to consider the key difference between a simple MA and an exponential MA? For example: The equation for a simple 5-day MA is: for day 5, MA5=(C1+C2+C3+C4+C5)/5, where C1=close of day 1, ... The equation for an exponential 5-day MA is: for day 5, MA5=2/(5+1)C5+(1-2/(5+1))M4, or MA5=1/3C5+2/3M4, where M4=exp MA for day 4. Now the advantage of the simple MA is that's it's simple to calculate... hence the name. But when there is a large change to the closing price, the MA is going to be bumped... twice. Once on the day that it happens, and again 5 days later, in this case. The disadvantage of the exponential MA is that it's a little more mathematically complex. However, that's why we have computers. The advantage of the exponential MA is that data fades away, instead of being abrubtly dropped off. You only get one bump when a big change happens, instead of two. This is why many technicians prefer exponential. Not because it works better in one system or another, but because it doesn't exhibit two bumps for every significant change. Loren