![]() I’ll make an assumption for the purpose of this explanation, but this guys edge is “beating the crowd to market” because by using a 48avg signal line he will see price action result in a cross signal 2 candles before “the mass market” will see the signal cross the 50avg. The opposite is true too, when a longer timeframe is used to calculate the average= more reliable signal(since you are using a longer(more stable) baseline of how your commodity has historically moved, thus better judging how current price action relates to previous) but a more reliable signal comes at the cost of missing initial movements. So you can look at it in this way…the shorter the timeframe used to calculate your moving avg plot line= the more noise and false signals it will generate. If you change the indicator settings to 100avg, than your line will be more dull/have rounded movement and it’ll be better resistant to short time frame price action compared to the 50avg line(price will often “float” away from the line for extended periods of time) If you changed the setting from 50 down to a 25avg, your line will be sharp/ have pointed reversals and will bounce more frequently with short term price action swings when comparing to the 50avg(price action will often cross multiple times through the avg line). People will go long if price closes and holds above their moving avg line and go short when it closes below. 50 is a highly popular moving avg and many eyes are on that particular line. Moving averages are probably the only one I can explain easily so I’ll expand for you….a moving average plot is the average from x number of candles, let’s use 50 for a baseline. ![]() Otherwise you may not use the indicator signals correctly, resulting in bad trades and lost faith in a properly performing indicator. There is enough information out there and investopedia often has enough to stitch a couple puzzle pcs together for me when I’m looking at a new concept I’m not familiar with, but you really need to understand the indicators you are using. So how can this give you an edge? Well if you remember from my earlier response, lagging indicators (and moving averages in particular) typically only work as self fulfilling prophecies. When watching the current candle this means that the moving average line is not totally representative of current candles price action, but rather it is comprised of current price action and the previous x candles price action, all averaged together(learn the fine details of SMA vs EMA for an aha moment). So again- moving average indicators are a lagging indicator that simply prints the information from previous candles into a linear layout. You can rate your setups easily from 1-5 and only take trades with setups that are 4/5 or 5/5 Say you have 5 indicators, then you should have one(or 2-3) that is required for entry, and the others will confirm strength. Your indicators form your trading strategy and basically become your trading checklist to decide how strong your setup. Wait for a rejection or bounce at S/R or a trendline break, then wait for a moving avg cross to confirm(now you have 2 technical reasons to enter a trade instead of one and a “good feeling”). You should use them as a confirmation signal….so that means around support/resistance, or if you see a pattern form on you can use the moving avg with a pattern break for an entry. A strategy one must develop should answer the question of where do you consider using a moving avg? They are not a buy/sell signals on their own. ![]() All lagging indicators are simply reporting already known information in an easy to interpret format….now moving averages do affect price action but it is only because enough people use them that they become a self fulfilling prophecy. In the literal sense, moving averages do not affect price action, period! They are a lagging indicator which means the line is plotted based on previously closed candles. You need to be careful with your understanding of the indicators you intend to use.
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