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It seems to me that alot of trading systems (Brain trend comes to mind) are based on or mimic the signals generated by using a 2 and 10 moving average cross system. For example, if you use Bollienger Band Histo you are taking signals from this cross about 95% of the time. If this cross is so effective, why are we not all rich by now?
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Think about what a moving average cross actually means, it's completey arbitarty, one average equals another average, what does this tell us about where the price is going, nothing!
Moving average cross systems look good on the charts because the human mind looks for what it wants to see (e.g. "oh look, I would have caught that big trend"), but it tends not to see the many false signals.
A lot of people like to use longer MA's for support and resistance, this is once again flawed thinking, the MA is heading toward the price, the price is not heading toward the MA.
MA's are not a bad tool per se, but people just seem to want to attach meaning which is just not there.
Interesting.....and good point. I notice that alot of indicators like Trend Manager and brain Trend and Bollienger band (if you sell/buy at the middle MA) Parabolic SAR all give the same signals as would a cross of two MAs, namely the 2 and 10. You are right that the MA's have no meaning in and of themselves, and are lagging indicators..but dont they tell you something about momentum in the over all trend when the 2 touches the 10? Whipsaws....yes I know. I look at BBhisto and Parabolic SAR and allowing a Stop loss of 20 I still get a fair amount of good trades, certainly enough to come out with profit with good money management. Is it possible that the historical charts are fudged somehow, and they dont really preform that well? You can even look at the high and low of a bar that looked like it might have touched the 10 moving average or triggered a sell signal in SAR or BBhisto and even counting those you would still have made a profit on average.......so what gives?
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I think we are talking about the same thing on two different threads
You bring up a number of separate issues.
1. Concurency of signals between different indicators, yes this is true, a number of indicators have MA's in their calculations, the CCI for example, a zero line reject is just a MA bounce. So based on observations like this, yes you do get a 'confluence' somtimes.
2. Does a MA cross indicate momentum? Yes, but only for the past.
You say by using BB etc you have a positive trade expectation, this is interesting because I have tried every indicator under the sun and not found a single one that has positive expectation over an extended period of time.
Send me your rules for this backtest and I will write an EA, I have data for EURUSD for all of last year, I will backtest and post the results.
It will be interesting!
Yes your right....we are, I just noticed. I opened the other thread in hopes that someone is using P-SAR succesfully because I noticed that it gives alot of the same signals that Brain Trend, BBhisto, Trend Manager, MA cross do. Okay......i've been trading with Brain trend for about 6 months and it does okay. Recently i've switched from taking Brain Trend Signals to taking BBhisto signals because these seemed to be more stable but were otherwise close to Braintrends signals. Then last week I was pissed to realize that all i've been doing all along was using a crummy old Moving Average Convergance Divergance in the form (2,10). That is, a two moving average crossing into a 10 moving average. As you said above, alot of them are based on it. Gee, very origional! Okay....moving on........yea, I bring up a BBhisto and Brain trend on your charts and youll see what I mean. Then overley the moving averages. Add P-SARS to the mix. Lots of good signals if your willing to sweat it out with a 20 Stop loss. Ill attatch a pick in a second.
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Its a bit crowded, but youll get the gist. The yellow moving average is a 2, and the green is a 10. Yellow dots are P-SAR, purple and blue dots followed by respective line is Brain Trend. BBhisto is in seperate box. Blue and Purple dots above or below zero line. I use ADX to filter Braintrend signals and I use Heat as a volume filter as well. Multi Time Frame MACD is useful in getting a glance at lower time frame activity.
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