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Analysis Moving Average for the Indian Investor / Trader
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Technical Analysis Moving Average for the Indian
Investor / Trader
If you use technical analysis for making trading
decisions, you're most likely looking for a system or a
set of indicators that will help you make profitable
trading decisions. Everyone does, and the process of
searching can be a lengthy and tiring one. The number of
software applications available today, coupled with the
numerous indicators from which to choose, are mind
boggling to say the least. Once you have an application,
you then have to pick which indicator or indicators to
use as well as the parameters. The parameters, or time
frames, that can be applied to many of the indicators
are infinite.
Lets consider the simple RSI, would you use 14 or 5 or
21 or maybe even a 7 period as a guide for your trades?
Can any of these parameters be adjusted not to give sell
signals in a Bull market or just give the buy signals
that will work? Not that I've seen. This is just one
indicator and only four different setting choices, each
of which may or may not give similar signals
simultaneously. In fact they actually could be
conflicting each other depending on the current strength
of the trend and market environment. Now how about if
you choose to add Stockastic, ROC, MACD, or ADX with
their different possible settings, this is no easy task.
So what should you do? The books available that provide
convincing explanations of how to use one or a
combination of these indicators are numerous. You may
know a trader that uses one of these indicators and does
well. If you choose to learn about indicators, the
information from that trader, if he or she will share it
with you will be of greater benefit than the book. They
will have learned the nuances of the indicator through
many hours of research to understand it and developed
the ability to avoid most of the false signals that can
occur.
If you were to remove everything from your charts,
except what would enable you to place a trade, you would
be left with the price bars. These price bars are
what every indicator you will ever look at is based on
and where your focus should be, not on the indicators.
A line on a price chart is actually meaningless. What I
will show you is that a simple moving average can guide
you to where you should be looking - prior price areas.
These prior price areas are where traders have committed
their money to an index or stock in the past, and money
is what moves the market. A prior area of price support
or demand is what can reverse a downtrend, not an
oversold indicator. Price resistance or supply overhead
is what causes prices to decline or consolidate, not an
overbought indicator.
Moving averages can quickly guide you to look for those
areas. There's no holy grail here, just a faster, less
subjective way of doing analysis. Once you see a moving
average, you now need to look to the left of it to
confirm the area. Then consider a trade only when and if
a reversal, or changing of the guard as we call it,
occurs. These points are where the probabilities of the
current trend reversing are likely, after a changing of
the guard. If there is no price data to the left of the
moving average you are viewing, consider the area of the
moving average, if a reversal pattern occurs,
questionable.
This is a starting point to a more simplified
approach to technical analysis through moving averages.
If you choose to build on it, Moving Averages can be
used to interpret overbought and oversold momentum,
relative strength and trend following. The moving
average is one of the few technical analysis tool that
can enable you to interpret so many variables as quickly
and accurately.
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