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Moving Avg. as support/resistance, example why I like... Rate this Topic:
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fpetry
Posted : Saturday, December 10, 2005 2:07:17 PM
Gold Customer Gold Customer

Joined: 12/2/2004
Posts: 1,775
This chart of REDF is a good example of why I like to use the 50 and 200 moving averages as support/resistance levels. I don't know why, but it seems to me the simple moving averages are used by the masses more than the exponential's. I've read the reasoning for using simple over exponential and vice versa and have experimented. However, often times the two are very close to each other and anyway I don't place utmost importance of the price as HAVING to stop EXACTLY at the moving average's line on the chart, but simply close to it. I get tired of hearing the expert talking heads in print and video mocking traders who rely heavily on technicals. Proof is in the pudding imo and seeing is believing. Of course moving averages aren't always this convenient and dead-on, but a good tool to use at times and not just hocus pocus. Opinions, pro or con?

slattum
Posted : Saturday, December 10, 2005 3:03:01 PM
Registered User
Joined: 12/1/2004
Posts: 1
Have you run this strategy on any of the back testing programs? I have not run your particular paramaters but it seems evrything I test out shows a performance below buy and hold. I do run all my data on a universe sorted for growth. This may be why the buy and hold strategy always win in my experience. One more comment about your mention of talking heads. I would have said all the talking heads were pushing technical analysis. Guess our biasses really show through.
markacz
Posted : Saturday, December 10, 2005 3:41:43 PM
Platinum Customer Platinum Customer

Joined: 5/4/2005
Posts: 74
fpetry:
My understanding is that hedge funds, mutual funds, and major institutions use the 50 sma for trading and the 200sma trend to determine bull/bear trends.
Securities transitioning rapidly thru the 200 sma are usually driven these large institutions.
markacz
fpetry
Posted : Saturday, December 10, 2005 6:19:06 PM
Gold Customer Gold Customer

Joined: 12/2/2004
Posts: 1,775
slattum, I have not done back testing, but through my own observations and study of thousands of charts I truly believe in the support/resistance levels formed by the 50/200 MAs (on some stocks such as REDF). Particularly in a chart like REDF where a pattern of strong support at the 50sma evolved over a period of 2 months. Monday and Tuesday offered excellent long entry points with obvious well defined stop loss placements imo. As for talking heads I should have said the "fundamentally" inclined taliking heads, most of whom seem to be fund managers, so no surprise:)

Thanks markacz for your reply, and I guess that's why the MAs on illiquid smaller cap type stocks are more helter skelter, i.e. the big boys don't play them.
malcolmb14
Posted : Saturday, December 10, 2005 9:44:31 PM
Registered User
Joined: 5/17/2005
Posts: 221
talking of highly owned institutional stocks trading on their 50 day MA ..lok at the chart for LVLT ...looks to reverse . This stock is 77% institutional owned
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