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Thursday, January 3, 2008

One Moving Average or Simple Moving Average

Useful if trending...

Buy Signal = Closing Price moves Above the Moving Average
Sell Signal = Closing Price moves Below the Moving Average


  1. must have a minimum threshold to avoid whipsawing - don't buy or sell immediately on the day of the buy or sell signal, there's a possibility that the price will fluctuate back to where it came from. It's better to give a day or two or number of price tick before making a position.
  2. there must be an added confirmation aside from crossing of the moving average e.g. pattern recognition
  3. how long should a moving average be? For short-term 5 or 10 days, but this is very sensitive and may result to false signals. However, the more sensitive the average, the early the signal will be.
Long average works better as long as the trend remains in force.
Shorter average is better when the trend is in process of reversing.