A new look at moving averages


Stochastic graph has a slightly different shape. But if you analyze these charts from the position of the classical concepts of overbought / oversold, the fundamental difference between them. That is to study the behavior of two different oscillators pointless. Nothing new, you will not see.

If desired, you can find other examples of the "sameness" supposedly different indicators, they are many. The total number of indicators that are available to the trader is about 120-150. Obviously, the track is not the number of indicators. Fundamentally different indicators are not really a lot, and all the rest - "variations on a theme."

However, there are quite efficient and intuitive methods of market analysis. In particular, work with the long-period moving (though correct to call them - moving) average (MA).

It should be noted that the textbook approach to the moving average is only effective for trending markets. In fact, we do not know exactly now trending market or not. And if they knew, then moving averages we would have been unnecessary: if we know that the trend is up, then you can buy, and not using technical analysis. In FOREX even with a stable trend correction always observed, very well predicted by using our new method. Detailed description of methods is not the purpose of article, so here we will only show highlights of the technique used.

Our "area method"

The figure shows the 60-minute chart of the dollar / Swiss franc and done MA with period 55. Finding the inflection points of the market - this is the main issue for bargaining. Usually it is used for this purpose oscillators. The strongest signal is divergence on them, but all trading repeatedly observed and triple, and quadruple divergence, after which the price kept going in the same direction.

Our method provides additional opportunities to define the end of the current trend and the onset of phase correction or trend change. Generally speaking, the definition of the moment of change of trend - the most difficult issues in the technical analysis that does not have the final decision. The classical approach proposes to examine the points of intersection of two or more AI, etc. But any practical trader knows that the result here is very controversial (if touch points of intersection as a signal to change the trend, it is better, in our view, to look at the intersection point on the indicator MACD-Signal). Our approach is based on a consideration of the behavior of two AI, but are not seen their point of intersection, and the value of the area S1, of between 5 - and 55-period MA, in conjunction with the value of the oscillator Osc (5, 55). Call this the "method of areas."

Reliability - 80%

It can be seen from general considerations it is clear that the area described by the 5 - and 55-period MA, can not reach arbitrarily large. Thus, you can choose a certain characteristic value of this area, the achievement of which will point to the approach of the corrective movement, ie a measure of overbought / oversold market. In contrast to other oscillators, our tool almost does not lose sensitivity when the limit values. This refers to the following effect. RSI exceed the level of 80% and reaches 85%. Let's say it was due to the price of 50 points. Changing the value of RSI from 85% to 87% may also be due to the price for the 50 items, ie with increasing values of the indicator are the same price changes cause changes in all the smaller display. In our case, this effect is much smaller. Thus, the main criterion for the presence of the signal at the opening position is the large area enclosed by the 5 - and 55-period MA, and great value Osc (5, 55). The criterion for the end of the signal is touching the price of MA (55).

This does not mean that the position should be closed. This means only the need to more closely monitor the interaction of price and MA (55). Very often, the price breaks MA and continues to go in the required direction (point A in the figure). Examining the results of the "area method" for last year, we got a very high (80%) the accuracy of the analysis tool. Moreover, if after opening the position price went against us, and it does not signal the end of the criterion, there is possible to use the tactics of "additions", ie opening another position in the same direction (working with the hourly chart the price should go first position on the price of 150-200 points).

In this approach, almost all open positions for the observation period can be closed with profit. Although it should be understood that such a tactic, first, very risky and it is applicable in the presence of an existing large profit on the account, and, second, in most printed sources considered wrong, but the fact remains.

But better - for FOREX

Description of the method (dependence of the accuracy of predictions on the selected time interval, area estimation techniques, working with Osc (5, 55), etc.) may be given, and in more detail. In the meantime, I would like to note one thing: this approach works well only in markets that have a pronounced oscillatory character, which are the outstanding representatives of FOREX, Sommodities etc. For markets where price fluctuations are small, and that more typical long trends with a small correction, our new method is hardly applicable (for example, the price of gold, especially the daily charts).

In addition, clear signals in the application of our method are rare - two or three times a month for work on the hourly charts. While on the other hand, this is normal - the higher the accuracy of the signal, the less often it occurs. This is offset by a high degree of confidence.

In the bidding process and the need to focus on the testimony of a number of other indicators, for the "philosopher's stone", unfortunately, did not, and the best signal must be confirmed by other sources.