Moving average {MA} indicators (page 61)

In the typical MA-based system, signals are generated in one of several ways:

• Price closes above or below its MA. Closing above the MA is considered a buy signal, whereas closing below the MA is considered a sell signal.
• In the case of multiple MAs, the approach signals buy or sell signals when the various lengths of MAs cross one another.
• In the case of MAs of closing, opening, high, or low prices, signals are generated when crossovers of the MAs occur as defined by the theory or method.
• MAs are lagging indicators since they give signals after a market has made a turn.
• These indicators tend to give many false signals.
  • Use a weighted, exponential, smoothed, displaced, or adaptive MA
  • Use a different MA length to exit a trade than you use to enter a trade.
  • Use different MA lengths for buy signals and sell signals.
  • Use another indicator to confirm or negate an MA
  • Use an adaptive MA.
    • Adaptive moving average employs a continuously changing exponential moving average smoothing constant that increases as the price trend slope approaches the vertical and decreases as the price trend slope approaches zero. {This would be good for recognizing big jumps in price}
    • Back testing of AMA failed to show any real practical advantage. Also it is quite normal and common for steep price trends to pause and form minor continuation patterns causing whipsaws.