Shares - Charting

[Gordon Gekko]

Hi All,

Ok, call me stupid but i have just discovered "Simple moving average" in charting.

Now i have been looking at the charting on the Comsec site. I have looked at about 50 different stock charts and used the "Simple moving average" price indicator.

There are 2 lines, pink and blue. And to my suprise, when the pink line is above the blue, the stock is rising in price and when the blue is above the pink, the stock tends to go down.

So when the blue is above the pink and then the 2 lines cross over and the pink is above, it seems to be a "signal" to buy and the same for a sell.

I have looked at about 50 shares and it seems to be right for 95% of them.

What does it all mean???

GG

 

[keithj]

There are 2 lines, pink and blue. And to my suprise, when the pink line is above the blue, the stock is rising in price and when the blue is above the pink, the stock tends to go down.

So when the blue is above the pink and then the 2 lines cross over and the pink is above, it seems to be a "signal" to buy and the same for a sell.

I have looked at about 50 shares and it seems to be right for 95% of them.

What does it all mean???

Google MACD ([size=-1]Moving Average Convergence Divergence). It works well when the market is trending, but google 'MACD whipsaw', for when it isn't.
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[Steve Navra]

What does it all mean???

It means:
When you're pink, you're happy AND when you're blue, you're sad
Life's like that . . . many ups and downs

 

[Gordon Gekko]

Google MACD ([size=-1]Moving Average Convergence Divergence). It works well when the market is trending, but google 'MACD whipsaw', for when it isn't.
[/size]

Thanks Keith, that explains alot

cheers,

GG

 

[natmarie73]

What does it all mean???

GG

Gordon,

The moving average (simple, weighted and exponential) is a lagging indicator which is calculated by adding the open,close, high or low and then dividing that by the relevant period. Therefore if the price is above the (lets say) 15 week moving average then it is obviously trading higher than the average price of 15 weeks ago. You can read more about moving averages and how they are calculated and best used on www.incrediblecharts.com.

In your example, the pink line will be a shorter time frame than the blue line, and yes, when the smaller period (eg 5 day moving average) crosses the longer period (eg 15 day moving average) then it can be taken as a buy signal and vice versa - you will need to experiment to find the time periods you are comfortable with.

As they are lagging indicators, they are best used in conjunction with a leading indicator such as MACD or CCI. They are a useful trend indicator although not much use in a ranging market.

Cheers
Nat

 

[Macca]

Hi GG,

I might add that moving averages are usually only used for confirmation or as a timing signal.

If you use them as your sole indicator the whipsaw on fees will kill you.

The way the market has been of late, just about anything that puts you into a rising stock has been successful.

 

[GreatPig]

GG,

One problem of using MAs - apart from the fact they lag - is trying to determine what time period best suits a particular stock. For stocks that mostly move in nearly flat lines you can use short time frames, but for stocks that jump around a lot over short periods you'd want a longer time frame to filter out all the noise, otherwise you'd be in and out all the time. And the longer the time period you use, the more they lag.

Their usefulness depends a lot on what sort of time frame you're trading over and how volatile the particular stock is over that same sort of period.

Also I generally prefer exponential moving averages, as they're weighted more in favour of the most recent prices.

Cheers,
GP

 

[Sunfish]

Citibank in the USA has just sacked it's entire TA team, including the head with over 20yrs experience.

I'm passing this on without comment LOL

 

[likewow]

Have a look at Guppy's MMA (multiple moving average) as used by Alan Hull.

http://www.justdata.com.au/Journals/DarylGuppy/profitable_trades.htm

Im not a big fan of TA by itself and prefer FA. But TA is good after finding great fundamentals in a company to time entries and exits but dont rely solely on TA.

And the problem with FA by itslef is its too slow if your a value or growth investor.

So, bottom line is a combination of both is excellent but with the emphasis on FA.

 

[Gordon Gekko]

Citibank in the USA has just sacked it's entire TA team, including the head with over 20yrs experience.

I'm passing this on without comment LOL

TA Team ???????????

 

[Macca]

Market talk for all them squiggly lines is Technical Anaysis.....TA for short