Moving Averages are not the Holy Grail and are not created equal; however if used systematically and consistently, they tend to keep a trader on the right side of the big moves.
They are a totally technical approach(they rely on price only) and it doesn’t matter which market you use them on. They work well in bull and bear markets and in both the stock and commodity markets; However they ‘ll whipsaw the trader in a sideways or trendless market. However, this isn’t as big of a disadvantage as it might appear at first.
Usually the trader will quit just before the big move starts.Remember that you need to catch the big moves when using a moving average system or you won’t win.
The length of the MA greatly impacts trading activity and therefore profitability.Many Traders use 5 -day MAs, Some use 10 -day MAs, others use 20 -day, many use 50 0r 100 -day and so on.
The length is an arbitrary decision,depending on the type of trader,but length directly determines the sensitivity of any MA.The lenghth determines how much time an MA has to respond to a change in price. It is a matter of lag time.This’s simple but important concept : Shorter moving averages are more sensitive than long moving averages.
