Novice Traders' Notebook  |  APR 1998

Applying Moving Averages by John Sweeney

Applying Moving Averages by John Sweeney The moving average, one of the first technical methods that novice traders study, can be applied to your favorite markets. Here are its strengths and weaknesses. It’s commonplace to honor simplicity but to simultaneously forsake it. The proliferation of indicators developed in the past 10 years alone is testament to that. What is simple is that prices are rising, falling or unchanging. What is complex are the indicators, mathematical contortions depicting the movement of price and volume in some abstracted form. As a fan of the objectivity of indicators, I nevertheless try to keep in mind what message they are trying to tell us. In many cases, the message is something as simple as Prices have risen. Note the past tense; no indicator uses future prices as inputs. When an indicator starts to move, price has already moved.To bring our perception closer to reality, we start talking about lines crossing or levels being breached or cyclic content or waves or neurofuzzy relationships or—well, you name it. While the sethings have their place, their ranking is low compared with the fundamental observation: Price has moved.

by John Sweeney