We all know what they represent, but very few of us know what they ‘really’ represent! Ok, let me make things very simple for you! When you look at a chart, under a certain time-frame, remember this: There is only one moving-average that ‘represents’ that chart at any particular time! The gradient of that moving average is key to those that support it!
For example, if the 600 exponential MA is the ‘representation’ for the 15mins EURSD chart this week, then at any given time this week, the gradient of this MA is watched by those(in the majority) that support it! If they want the gradient of the MA to remain positive then whenever price falls below the MA(therefore, reducing the gradient of the MA to zero and possibly into the negative zone) these players will come into the market and push price up to a level so that the gradient of the MA remains positive again!
What will happen if they do not keep the gradient positive(in the direction they want)? Other players will jump into the SELL-WAGON and push price further down. The key thing here is to identify the representation-MA!
I will provide some examples! This chart below showS the representation MA for a certain time-frame! Do you see how those supporting the MA caused price to SPIKE upward each time the EURUSD came close to the MA? To keep the direction up for a given time, they will have to PUSH PRICE up to a level that dominates all price levels within a certain range(usually the range that defines the MA). By doing so, this new price level will work its way into the averaging formula and keep the gradient of the representation-MA positive until there is the need to do so again.
So, a key thing to do is to find the ‘elusive’ representation-MA and ask yourself whether the MA is about to assume a local-maximum or local minimum. Find the last turning-point of the MA and estimate where the next turning point will be. If you expect it to happen with the next x-periods, then price will have to move accordingly to make it so.
Another thing about the REPRESENTATION-MA, you should watch is its gradient range: The gradient of the representation-MA is between 30 and 45 degrees for steep-uptrend and 330 and 315 degrees for steep-downtrend! So, if for a given uptrend the gradient is 40 degrees, one can expect price to RANGE/(REMAIN FLAT) or fall in order to reduce the gradient! The same argument applies to the downtrend case!
Notice that EURUSD will have to FALL in order to get the gradient of the BLUE-MA within the 315-330 range! So any push up currently may see a SHARP-FALL later on when the players supporting that representation-MA come into the market to keep the gradient NEGATIVE! The chart above show a local-maximum for the BLUE-MA( a good approximation to the representation-MA). Question: Are we going to see a local-minimum soon(close to this local maximum)? If the answer is no, then expect price to fall or remain below this MA for some time.
This indicator shows the angle of the MA, I would paste more of a description, but the site doesn’t allow for copying and pasting words.MAAngle.zip (1.8 KB)
MAs react to prices; I seriously doubt that prices react to MAs other than the few instances when the dominant style of trading makes it appear that way - in other words, a coincidence or a particular MA (try to predict 1) acting as support / resistence.
Look at the MA as a differentiable function with local-max and local-min. The MA is also the graph of a random-variable. Predict the slope of the MA and you will know what price must do!!!
I understand differentials and local min/max. Could you please quote whose theorem / theory says that MAs can predict anything. All my years of math taught me was that MAs are go way to see what has happened in the past ie to get a smooth data fit to help in analysis. Analysis of past data, not future.
Ok, so if we are looking to predict the slope of an MA to infer where price might be. What angles should we predicting or looking for. How do we look to line up a trade if this is the entry/exit signal?
Ok boss: You are not getting the key point of my post! The graph of the actual price of any currency pair is not really smooth at all. People are really interested in the overall picture and not those little changes! If I have a lot of money and want to keep an upward pressure on price, I will really keep my eyes on the appropriate MA! Suppose I can inject money into the market every two days. If on day x I check the chart and the slope of the MA is approaching zero(when in fact, I want price to keep going up and I have the power to push it up), I will pump money into the market in order to support buyers and push price above the last significant high in order to keep the average price (MA) up, TILL MY NEXT COMING)
If I do not do so, seller will take over the market and get the market out of my control!
Therefore, predicting the slope of a given MA is equivalent to predicting the actual price level! If I believe that over the next 24hrs, the 60EMA will keep a positive gradient, then whatever, the level of price currently, it will have to react to make that prediction come true! Also, if the slope of the MA is very steep(critical, above 50 degrees say), then price will have to work much harder to increase it further! Most of the time, it wouldn’t be able to do so. At that slope, price will RANGE/FALL!
OK, you believe that price follows the gradient of the MA and you believe its the 60. Somebody else will probably argue just as vehemently its the 50 another the 20. Then of course, the Fibonacci guys come along and say every new price level is just a Fibo extension. Of course that depends on which points they pick. Then there are many others that believe price is reacting to an interest rate or jobless claim announcement.
The thing is that all these theories will turn out to be right some of the time. Even a broken clock is right twice a day.
For the MA you are working with, do a back-test on the average gradient! Find the extreme angles(up/down).
For example, if the extreme angle(for uptrend) over the past 10 years is 45 degrees and the current angle is 43 degrees then you are quite sure the price will have to work ‘extremely’ hard to beat the 45deg mark! That means you can expect price to get into a range-mode or fall-mode in order to reduce the slope.
To be on the safe side, do a back-test! for a given MA, what are the most extreme angles over, 10 years say!
Pay attention to how your MA is calculated! What values must go into the formula in order to get a given slope? If you expect the slope to fall, then you can estimate what price must do in order to make that happen.
Is that why you called the UE falling last week? The angle was steep, and so based on past results on a certain time table, the avg slope would soon weaken?
The only guy that I am aware of that could take an angle and project prices with success was Gann (and some of his followers). I will grant there is some validity in MA gradients (and fibs). But I don’t think Gann worked with MAs. I am still trying to get my head around his stuff. What I know for sure Gann’s HiLo doesn’t work much better than say Tom Demark’s Supply / Demand lines.
Again I am asking for somebody’s name to back up your claims.
Forgive my scepticism but this all sounds a bit ‘smoke and mirrors’ to me? So you back test the last ten years to guage the most extreme angles of a given MA and instrument then use this data to predict likely future angles of MA, yes? So you think the last ten years of fundamentals were not a contributing factor to the MA pattern? Or we are only to take a trade when the MA angle is of the same’ish slope? Or are you suggesting the ‘fundi’ pattern will likely repeat in a ten year cycle? What time frame chart/ trade are you advocating using with this ten year data?
