Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
How many of you use a moving average or similar "mean" as a profit target?
I think that averages on various timeframes can be helpful for contextual purposes -- that is, to understand what is going on in an overall sense. They can also help in actual trading tactics, once you have decided the contextual question.
To that end, I have used different MA's and also VWAP for different periods (for VWAP generally daily, but sometimes longer) as aids in understanding current price movement.
Using an average as a target may make sense, depending on the premise of the trade. Often price will go to an average, but it will also often exceed it or fall short. For example, in a purely ranging market there will be movement of price above and below a central average, as it swings between range extremes. In a strongly trending market, price may often swing back toward an average, and then resume its movement upward (or downward) in the direction of the existing trend. When a trend is changing or weakening, price may begin to move back to the average and then swing past it as direction changes.
Because what price may do relative to an average will differ depending on whether price is in a trend or ranging mode, I'm not sure that it is reasonable to always consider it the same way; that is, to always look at it as a target, or as potential support or resistance, or as a signal if broken, or in any of the ways that it is sometimes used. I think these may each apply sometimes, and may give useful information when they do.
I have not found averages to always be useful in the same way at all times, however. I do think the question of overall market and trade context is important. MA's and VWAP and other average types can also be a part of deciding this question, which makes it all a little circular, unfortunately. You do somewhat have to just make up your mind, and then see how it plays out under that premise, until proven right or wrong.
After forming an idea of what price is doing now, then averages can be of help in actual trade tactics also (as in targets or other decision factors.) But not necessarily independently of the larger question, and not always in the same way.
I would be hesitant to always treat any average in the same way, under all conditions.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Although I no longer use them and contrary to what some traders think...If used with very good risk management, Moving averages can be profitable to a degree. Although I only used them as a entry confirmation and a "for god sake get out" stop loss? I did also adjusted mine for Volatility Skew.
But that being said.....I'm so glad I no longer need them to trade. There ok to use while learning the market.....but you will be a much better trader once you learn to read price action, understand changes in volume, keep a close I on volatility and have very strict risk management.
I mainly use , to make sure I am following trend. I will use them for mean reversion trades but these are easy to spot on a chart with out. Its really come down to the fact that I like seeing them on my chart but if i had to I could easily do with out.
as some stated learning to read priceaction will be much more useful then reading moving averages.
-P
"Truth is not what you want it to be; it is what it is, and you must bend to its power or live a lie"-Miyamoto Musashi
I use 200EMA as a sort of beacon and 20EMA as more of a "swiss army knife".
I didn't really know what to use 20EMA for but I threw it on my charts, initially because others with similar trading style to mine find value in it, but also to watch and see what I'd learn.
I like this approach because you learn to make your own rules for these tools, not necessarily what they're "supposed" to help you with but what you actually find value in yourself by using them. I found I could bend it into all kinds of uses, trend indication, rotation indicator, support & resistance level, you can use it as something to lean into during certain price-action patterns. You can find many creative uses for them.
I have started to think about if there is a way to compute the most relevant EMA for a particular market condition and volatility level, like a dynamically changing EMA that adapts to the market, but I think its probably a dead-end. I like to imagine there is something to it though. I'm probably describing something very basic that is already out there.
That being said, I don't currently use many indicators but I have nothing against them and may try using similar experimental approaches with things like itchimoku clouds or something, who knows.
I don't use MAs as a target, but they play an important role in my entries. I use a longer term simple MA, shorter term simple MA, and VWAP. For me, MAs tell me what direction I am trading in and what type of trade I am looking for. Price action has actually become a lot less important to me. The positioning of price to the 3 MAs and the positioning of the MAs relative to each other tells me what is probably going to happen next.
One of the problems I used to have was trying to determine if I should be looking for a trend trade or a reversion to mean trade. Using MAs, I have determined certain rules that clearly tell me what type of trade is appropriate. They've allowed me to define rules to keep me out of the chop and determine where my entries will be before price gets there.
