Indicators | FEB 2007
Anticipating Moving Average Crossovers by Dimitris Tsokakis
Stocks & Commodities V. 25:2 (20-26): Anticipating Moving Average Crossovers by Dimitris Tsokakis Although simple moving averages may be a technical analyst’s best friend, they do tend to lag. Here’s how you can overcome this problem. Moving averages are excellent indicators to confirm existing trends in spite of their lag. To overcome this lag, several alternatives such as the exponential moving average (EMA) and the weighted moving average (WMA) have been applied to price charts. In this article, I will not tweak the simple moving average (SMA). Instead, I will decrease the lag of the SMA crossover by one day by basing it on a simple mathematical observation. SIMPLE MOVING AVERAGE CROSSOVER First, I would like to show you an arithmetic example. A five-day simple moving average (MA5) is the average of the last five closing values: MA5 = (C + C-1 + C-2 + C-3 + C-4)/5 = C/5 + (C-1 + C-2 + C-3 + C-4)/5 [A1] In a similar fashion, a four-day SMA is: MA4 = (C + C-1 + C-2 + C-3)/4 Its previous value is: MA4-1= (C-1 + C –2 + C –3 + C –4)/4 or 4*MA4-1= C-1 + C –2 + C –3 + C –4 or 4* MA4-1/5=( C-1+C –2+C –3+C –4)/5 If you replace (C-1 + C-2 + C-3 + C-4)/5 in [A1] you get: MA5 = C/5 +4*MA4-1/5 or MA5=(C+4*MA4-1)/5 [A2]
by Dimitris Tsokakis
Technical Analysis of STOCKS & COMMODITIES
The Traders’ Magazine since 1982
has had over 1,226,237 subscribers from 174 different countries.
37,000 Page Traders’ Archive for $89.99
To continue reading, sign-up for trial access to Traders.com and the S&C Archive — 37,000 pages of trading ideas!
After verifying your email address, you will have limited access to the S&C Archive, as well as access to a Digital Edition of S&C, and access to Traders.com Advantage and Working Money for 30 days.
Not a subscriber to Technical Analysis of
STOCKS & COMMODITIES magazine?
Click
here to subscribe, or request
a trial subscription.
Log-in now to view articles from the S&C Archive.
Your Subscriber ID is located at the top of your magazine label, highlighted here in red.
Your last name can be found on the second line, highlighted here in blue.
*If you have a company name on the label, that can also be used. It will appear below your name on the label.
If you do not have a Subscriber ID on your label, you can find it on your statement or renewal form.
For help locating your Subscriber ID number, please call us at 1-800-832-4642 or send an email to Survey@Traders.com. If sending an email, please include your name and mailing address.