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Post# of 13554
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LG

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LG

Re: None

Thursday, 10/03/2002 7:06:50 PM

Thursday, October 03, 2002 7:06:50 PM

Post# of 13554
Moving Averages the Why? Of course, IMO...gg

Thanks to those that have already generously shared your views. Below is mine. However, I hope others will continue to post their views especially if they disagree or feel there is more.

-----------------------------------------

Moving averages are one of the simpler tools use by technicians, one most everyone seems to understand or do they?

A moving average provides an indication as to the average price investors have paid for a given investment instrument during a moving window (a set amount of periods) of a given time interval. Of course, moving averages are flawed as they fail to take into account volume and are most often calculated using the close of each time interval. The only accurate way to do this would be to derive the average from the time/sales data, but I don't know of any service providing this breakdown. At any rate, however flawed moving average may be, most every technician uses them. And the averages take their flaws with them as they are used in many more complex indicators of which they are components.

Now having stated that they are flawed, they do provide us insight into the general average price paid by investors with regards to a moving window (a set amount of periods) for a given time interval.

Let’s ask Matt what he thinks...gg

...To understand how moving averages can be used, it's first key to see what they're telling you. Think of it like this: Let's say a stock's 30-day moving average is $30. That means anyone who bought the stock over the past 30 trading days paid, on average, $30. So if the shares drop below $30, you can imagine that all the recent holders are probably not too pleased and may be more likely to sell. Likewise, if the stock is 15% above its 30-day moving average, some of these short-term investors may start thinking about selling to lock in their gains.

So it's clear that moving averages can be decent indicators of where other investors stand. But here's the problem: Which moving averages should you use? There's not really a correct answer to this. Longer-term investors (and even some short-term traders) may prefer to watch the 200-day moving average. When a stock moves below its 200-day moving average, this shows that everyone who bought the stock within the past year, on average, is now losing money. As you know, investors tend to lose patience with stocks that've been sour for a year — since sometimes these stocks can suffer additional selling pressure. Shorter-term moving averages, especially the 50-day, can be helpful, too. But remember that moving averages based on a time period shorter than 50 days can be skewed by unusual events...

http://www.usatoday.com/life/cyber/invest/2002/06/04/askmatt.htm

Thanks Matt, but let us always remember, not only do they represent the average price paid for a given financial instrument during a moving window (a set amount of periods) of a given time interval, moving averages take on additional importance and significance depending on how widely a particular given moving average is tracked. So, when choosing a moving average, make sure it is one that is widely used so you can track what everyone else is looking at. So you can anticipate the herd or at the least monitor what the heard monitors.

Folks that banter about obscure moving averages, averages no one else is tracking, are often unaware of what moving averages are actually telling us and that it is also important as to how many others are tracking the average.

How are they used, asked MechanicalMethod?

I suspect most just use them as a trending guide, while some use them in the simplest of form. They use them to generate simple buy and sell signals. When the price moves above a moving average it is a buy and when the price moves below it provides a sell signal.

Of course, there are more complex ways to use moving averages, like using them in tandem to produce moving average crosses. Or, use them as components in more complex indicators.

-------------------------------------

Just my take...

Regards,
LG

Moving Averges 101...

http://www.fimi.com/studies/moving_averages.htm

http://www.stockcharts.com/education/What/IndicatorAnalysis/indic_movingAvg.html

http://www.ianr.unl.edu/pubs/farmmgt/g1055.htm

http://www.incrediblecharts.com/technical/moving_average.htm

Moving Averages out the whaazoooo...gg

http://www.linnsoft.com/tour/techind/movAvg.htm



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