Moving average(MA) is one of the oldest indicator. Lot of people (including me) would reject the idea that such a simple indicator can be of any use in modern day considering availability of advance computer tools.
I came across free training videos of Oliver Velez who explained on how to use it. When I back tested his logic I was really surprised..
Since then I have kept 20SMA and 200SMA as default on my chart. Best part of this concept is, it works on any time frame.!
MA can answer following key questions which helps anyone become good trader/investor..
Q1. Is the stock trending? and What is the direction of trend.? A1. If 20MA is flat stock is not trending. Direction of 20MA is direction of trend.
Q2. How old is the trend. (if trend has just started I can board it and if it is too old I will not) A2. If 20MA is not too far from 200MA trend has just started. If 20MA is too far from 200MA be alert trend might be matured.
Q3. Am I buying in value zone so that my SL is small.? A3. Buy when stock retraces near 20MA.
Q4. Am I exiting at a value where I have got good amount of move. So that my profits are much higher than losses. A4. Exit when stock is far away from 20MA.
I have marked all above on these chart for easy understanding.
As we can see FAR and NEAR are relative terms. Hence it takes good amount of practice to grasp and trade this concept.
Considering volatility lot of whipsaws can happen in intraday and daily time frame. So I started using it on weekly time frame and started getting good results with holding time of 3~10 weeks.
However once you are confident in your stock selection criteria this is good way to ride a trend.
We can compare trading using MA to flying kite. It is simple but not easy. One need to practice to master the skill. One need to get feel direction and gust of wind, Understand behavior of kite and finally time the action to fly kite.
Hope this post will help you appreciate this oldest indicator...
Thank you for your valuable contribution to the TradingView community and keep up the good work!
krishnadoss
⋅
Its a dynamic support.if u see the past chart it ll look like taking support .u work on live chart then u ll come to knw about that
Munish_Jain
⋅
have you tried ichimoku lines? they're similar to ma's with some added advantages!
yndesai
⋅
@Munish_Jain, I had looked at it few years ago but I could not get grip of its concept. There are people who uses it successfully. So if you are using it with good success please continue.
As Bruce lee once said: "I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times."
So in the end I needed to master one method 10,000 times to be successful. After lot of jumping around with various indicators, I found this concept very much in line with my investing Psychology. So I zeroed on this one. It also keeps my chart clean. Every system has 60~70% success rate and this one too.
So now a days I don't experiment with other concepts.
Munish_Jain
⋅
@yndesai good that you've found success with MA's. I'm in the same boat with ichimoku :D
Munish_Jain
⋅
@yndesai in case you ever want to experiment, the added advantage is that ichimoku lines can go flat, which signals sideways action.
yndesai
⋅
@Munish_Jain share if you have any write up. Or share idea about it
pkinani
⋅
Money earns by itself say by investing in different debit instruments. Any trading system to be really worth adopting should be able to beat the passive income capabilities of money. Longer money gets invested in a trading system larger gain on investment is required from the trading system to beat the passive income. If the trading system needs 3 - 10 weeks to generate income then profitability of strategy needs to be evaluated accordingly. Every 4 weeks of investing erodes around 1% of passive income and if price of underlying drops from invested price the erosion deepens further. Hence in such cases the trading system needs to outperform these to be profitable. To summarise it’s a good insight how SMA 20 and 200 can be used to create a winning strategy but cost of investing needs to be considered by every investor to determine the overall profitability.
pothineni
⋅
@pkinani, Agreed , along with stock fundamental also to view as third eye to get 100% confidence , however , 20 ma and 200 ma meeting is a opportunity to in . patience is needed to success
yndesai
⋅
@pkinani you are right of erosion by time. So we need to enter trade only if we see targets / next resistance is at least 12-18%. Weekly setups helps identify such events.. Current setup in EPL has +25% potential. Holding for 6 weeks for such targets is worthy.
This publication has been chosen for the Editor's Picks and will feature on the page in.tradingview.com/ideas/editors-picks/.
Thank you for your valuable contribution to the TradingView community and keep up the good work!