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V.15:11 (522-524): On Moving Averages by John Sweeney
V.15:11 (522-524): On Moving Averages by John Sweeney
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It's been around forever, and it's a tried-and-true favorite. It's also the source of great frustration. How can anything end up as both? Here are the basics for using moving averages to identify the trend in the market.
No technique is more frequently used or more maligned than moving averages of prices. Its used frequently because its the embodiment of a fundamental trading rule: Go with, not against, changing prices. Averages cant help themselves; they always go in the proper direction, not sooner but later. Hence, the malignment: Since averages movement lags price action, their indica-tions for trading will be late and perhaps, therefore, unprof-itable. How to make the most of these artificial constructs?
SOMETHING RELIABLE
First off, in contrast to, say, trendlines, it is important to recognize that averages are a mathematical construct. There-fore, they will be computed with robotic catatonia, no matter what the current hysteria. While trendlines, arcs and circles are usually personal visual constructs, it is their mathematical abstraction that gives indicators their attraction and validity. Though an indicator can be thrown by data quirks that a human might might! ignore, the good side to this unquestioning use of data is that the indicator ignores noth-ing, an error that humans, prone to ignoring bad news anyway, routinely commit.
No technique is more frequently used or more maligned than moving averages of prices. Its used frequently because its the embodiment of a fundamental trading rule: Go with, not against, changing prices. Averages cant help themselves; they always go in the proper direction, not sooner but later. Hence, the malignment: Since averages movement lags price action, their indica-tions for trading will be late and perhaps, therefore, unprof-itable. How to make the most of these artificial constructs?
SOMETHING RELIABLE
First off, in contrast to, say, trendlines, it is important to recognize that averages are a mathematical construct. There-fore, they will be computed with robotic catatonia, no matter what the current hysteria. While trendlines, arcs and circles are usually personal visual constructs, it is their mathematical abstraction that gives indicators their attraction and validity. Though an indicator can be thrown by data quirks that a human might might! ignore, the good side to this unquestioning use of data is that the indicator ignores noth-ing, an error that humans, prone to ignoring bad news anyway, routinely commit.
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