Moving averages

[Fred114]

Just trying to understand these things. Would someone mind reviewing and correcting my understanding? In summary 1. if the share price is above the MA the market is bullish 2. if the share price is below the MA the market is bearish, ie. not really supporting this stock. When to buy based on MA? When MA30 crosses above MA120 When to sell based on MA? Converse. So in this example attached for pfi, it looks like it might be getting near time to buy.......

[Jay]

Have a look here fred http://www.swing-trade-stocks.com/moving-averages.html

[Halebop]

Nice question Fred!

I'm not a big fan of moving average but would be interested if someone has some empirical stats on their predictive powers? Suspect they would also be influenced by the broader trend (Trending vs Ranging)

[darksentinel]

Just an extra word of advice, when using moving averages make sure that your stock is trending, not ranging. If your stock is not trending (i.e. it is oscillating within a rough range) then moving averages won't be very useful and trading based on them will just cost you a fortune in brokerage.

Halebop:
I did some very naive backtesting and here are some results:
NZX50 30/4/04 to 06/03/21:
Buy and hold over this time: 29.3% increase.
Buy at lowest point and sell at highest: 79.2% increase.
Buy whenever price goes above 31 SMA and sell when price goes below: 72.9% increase - brokerage on 62 trades = 48.1% on brokerage of 0.4%.
Buy/Sell whenever 7 EMA crosses 82 EMA: 60.8% increase - brokerage on 13 trades = 55.6% on brokerage of 0.4%.

Better results when using a trend-identifier.

Results are indicative only, I'm not suggesting to use them or anything, just pointing out that MAs could potentially be used profitably.

[Halebop]

Halebop:
I did some very naive backtesting and here are some results:
NZX50 30/4/04 to 06/03/21:
Buy and hold over this time: 29.3% increase.
Buy at lowest point and sell at highest: 79.2% increase.
Buy whenever price goes above 31 SMA and sell when price goes below: 72.9% increase - brokerage on 62 trades = 48.1% on brokerage of 0.4%.
Buy/Sell whenever 7 EMA crosses 82 EMA: 60.8% increase - brokerage on 13 trades = 55.6% on brokerage of 0.4%.

Cheers DS, not a huge sample but impressive results all the same. I'm assuming on something like a 31 SMA the average hold time would have been relatively compact for your 48%?

[darksentinel]

Cheers DS, not a huge sample but impressive results all the same. I'm assuming on something like a 31 SMA the average hold time would have been relatively compact for your 48%?

Yeah, as I said, indicative. It's just some data I had on hand that I'd been playing with. I've locked at a couple of stocks, and they give interesting results for using the crossing points of two different MAs.

Here's a spreadsheet of what I'd been doing using a 29 SMA/Price cross: http://dl.dropbox.com/u/44057876/NZX50.xlsx. It clearly shows the triggers and the problems (e.g. 26 trades were only held for 1 day). Average holding period was 15 days, but if you remove everything 1-day trade, then average holding period goes up 25, pre-brokerage profits go up to 97.7% and of course brokerage costs go down as well.

NB: all % gains are non-cummulative (non-compounding).

And yes, this is back-testing and data-fitting. Just making the point that MAs can be a useful (and simple) tool

[STRAT]

Hi Fred.
Reasonable description here. As to timing trades with em. Certainly not, as a stand alone indicator.
I dont use em at all other than to make a chart look more complex.

As the other fellas pointed out. No use if a stock is ranging. The one in your PDF is.

http://www.incrediblecharts.com/indi...ng_average.php

[lou]

Just trying to understand these things. Would someone mind reviewing and correcting my understanding? In summary 1. if the share price is above the MA the market is bullish 2. if the share price is below the MA the market is bearish, ie. not really supporting this stock. When to buy based on MA? When MA30 crosses above MA120 When to sell based on MA? Converse. So in this example attached for pfi, it looks like it might be getting near time to buy.......

Using a moving average indicator for listed property trusts (pfi) as the price is relatively stable and the dividends high and consistent.

[Fred114]

Using a moving average indicator for listed property trusts (pfi) as the price is relatively stable and the dividends high and consistent.

I'm having trouble understanding this last quote, but I appreciate that PFI is ranging and that MA's are not useful as tool.

[lou]

hahaha I missed out the key point.

Using a moving average indicator for listed property trusts (pfi) is not a good tactic as the price is relatively stable and the dividends high and consistent.