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Online Share Trading

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SI and Moving Averages

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Frequent Contributor
I am trying to find entry points on share installments by making use of moving average crossovers. At the moment I am using a 10/21 day crossover. Any opinions on whether MA is a good way to go to find entry points on SI's will be much appreciated. Any suggestions on good books about MA's would also be great.
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9 REPLIES 9
Super Contributor
MAs always lag the market. They sometimes tell you too late that things have change and by the time you enter, the market is already reversing. They do work for some shares and not for other. If you want to use MAs, find the shares they work for and only trade those.
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Super Contributor
Rather look into MACD... it incorporates MA's but is more of a leading indicator than MA's. An upturn can signal an entry point, with a crossover of the 0 line a further confirmation. Also, none of this has anything to do with SI's... determine the entry point on the underlying and then choose which instrument you want to trade. OMO (Prefer Surf to be honest...)
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Frequent Contributor
Thanks. I am looking at the underlying but you are right; there is always this trade off between smoothing and lag. Will have a look at MACD.
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Valued Contributor
boing, try EMA or WMA rather then simple - certainly it is possible, I trade teh Top40 using a series of EMA's. Also don't chart the SI, rather chart the underlying but trade the SI.
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Frequent Contributor
Thanks Simon. I do make use of EMA. Unfortunately the 10/21 day still lag quite a bit. On the other hand, it does eliminate a lot of noise when the underlying starts to move sideways or if there is a false break out. I am confident with my exit strategy. It is just the entry point that is getting me.
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Valued Contributor
lag is fine, within reason. You're never going to get in or out at the exact extreme, frankly in order to reduce risk you don't want to.
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Super Contributor
MA's (EMA's etc) work well if you're in a trending market. Most of the time markets are not trending (I've seen a figure of 80% quoted). If you can work out whether you are in a trending or a trading market you can decide whether MA's are the best approach or whether other tools like oscillators are going to be more useful.
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Frequent Contributor
Thanks Tango. Unless I am misunderstanding you, I always thought the opposite was true. That markets spend 80% of the time in a trend and that it forms a top or a bottom during the other 20%.
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Super Contributor
can't find anything to back up my statement at this point, but I'm feeling pretty confident about what I said ; )
Anyone else got a reference for the amount of time a stock spends trending?
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