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www.nationalfutures.com

Presented By:Presented By:

John L. PersonJohn L. Person

Sponsored by:Sponsored by:

Daniels TradingDaniels Trading

A Complete Guide toA Complete Guide to

Moving Average StudiesMoving Average Studies

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A Complete Guide to A Complete Guide toM oving Average StudiesM oving Average StudiesCopyright @ 1999Copyright @ 1999 --2007 by John L Person III, Palm Beach,2007 by John L Person III, Palm Beach,FL. The opinions presented, are for informational purposeFL. The opinions presented, are for informational purposeonly. By law I must submit this disclaimer: There is noonly. By law I must submit this disclaimer: There is nowarranty of profits as a result of using these or anywarranty of profits as a result of using these or anymethods. Past performance is not indicative of futuremethods. Past performance is not indicative of futureresults. The use of "stop loss" or "stop limit" orders will notresults. The use of "stop loss" or "stop limit" orders will not

necessarily limit your losses to the intended amounts, sincenecessarily limit your losses to the intended amounts, sincemarket conditions may make it impossible to execute suchmarket conditions may make it impossible to execute suchorders. Any decision to purchase or sell as a result of theorders. Any decision to purchase or sell as a result of theopinions expressed in this report will be the fullopinions expressed in this report will be the fullresponsibility of the person authorizing such transaction.responsibility of the person authorizing such transaction.

It is unlawful to reproduce, distribute or exhibit this materialIt is unlawful to reproduce, distribute or exhibit this materialto anyone other than the individual assigned.to anyone other than the individual assigned.

You cannot reproduce this material without express writtenYou cannot reproduce this material without express written

consent of the author, John L. Person.consent of the author, John L. Person.

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A Complete Guide to A Complete Guide toM oving Average StudiesM oving Average Studies

I will cover the various types of moving averages, and will expI will cover the various types of moving averages, and will exp lainlainwhich ones are better for day traders, scalpers or longer termwhich ones are better for day traders, scalpers or longer termposition traders.position traders.

We will go over the logic behind various time settings that areWe will go over the logic behind various time settings that are

associated with calendar dates and Fibonacci number series.associated with calendar dates and Fibonacci number series.

We will cover how and when to use various conditional settingsWe will cover how and when to use various conditional settingsbeyond the typical close period used exclusively by many tradersbeyond the typical close period used exclusively by many traders ..

We will also go over the pros and cons of several popular movingaverage settings and reveal which parameters work best to improvetrading performance.

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Presentation OutlinePresentation OutlineWhat is a moving average.What is a moving average.How many types of moving averages are there to use.How many types of moving averages are there to use.How to calculate a moving average.How to calculate a moving average.Which Inputs to average.Which Inputs to average.

Time dimensions for moving averages.Time dimensions for moving averages.Cross over signals.Cross over signals.Moving average channels.Moving average channels.

Filters on moving average signals.Filters on moving average signals.Use of Fibonacci as moving average settings.Use of Fibonacci as moving average settings.Use of Pivot Points as a moving average system.Use of Pivot Points as a moving average system.

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W hat is a Moving AverageW hat is a Moving Average

Simply put Moving Averages are a mathSimply put Moving Averages are a mathcalculation that averages out a series ofcalculation that averages out a series ofnumeric values.numeric values.

A moving average series can beA moving average series can becalculated for any time series. In financecalculated for any time series. In finance

it is most often applied to stock andit is most often applied to stock andderivativederivative pricesprices , percentage, percentage returnsreturns ,,yields and trading volumes.yields and trading volumes.

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Moving Averages are Lagging IndicatorsMoving Averages are Lagging Indicators

Lagging Indicators helpLagging Indicators help s traderss tradersdetermine that the trend is in tact anddetermine that the trend is in tact andconfirms the momentum of the market.confirms the momentum of the market.This is considered a trend followingThis is considered a trend followingtechnical approach, thus the term laggingtechnical approach, thus the term laggingis used. This category includes:is used. This category includes:

Moving AveragesMoving AveragesMACDMACD

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Types of Moving AveragesTypes of Moving Averages

Simple= Popular & easy to calculateSimple= Popular & easy to calculate

Weighted =Weighted =

Exponential =Exponential =

More sensitive toprice change &

more complicated

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How to Calculate a SM A How to Calculate a SM A

1, 2, 3, 4, 5, 6, 7, 8, 9, 10,1, 2, 3, 4, 5, 6, 7, 8, 9, 10,

13600, 13620,13615, 13580, 13565, 13600, 13610, 13650, 13660, 113600, 13620,13615, 13580, 13565, 13600, 13610, 13650, 13660, 1 3650,3650,

Sum = 136150Sum = 136150 10 = 1361010 = 13610

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W eighted M oving AverageW eighted M oving AverageA weighted average is any average that has multiplyingA weighted average is any average that has multiplyingfactors to give different weights to different data points.factors to give different weights to different data points.

But in technical analysis a weighted moving averageBut in technical analysis a weighted moving average(WMA) has the specific meaning of weights which(WMA) has the specific meaning of weights whichdecrease arithmetically.decrease arithmetically.

Weighted M/AWeighted M/A s give a greater weight to more recents give a greater weight to more recentprice data.price data.

Complicated and needs aid of a computer.Complicated and needs aid of a computer.

In anIn an n n --day WMA the latest day has weightday WMA the latest day has weight n n , the second, the secondlatestlatest n n - - 11 , etc, down to zero., etc, down to zero.

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Exponential Moving AverageExponential Moving AverageExponential moving averages (also calledExponential moving averages (also calledexponentially weighted moving averages). appliesexponentially weighted moving averages). appliesweighting factors which decreaseweighting factors which decrease exponentiallyexponentially ..

EMA's reduce the lag by applying more weight toEMA's reduce the lag by applying more weight torecent prices relative to older prices.recent prices relative to older prices.

The shorter the EMA's period, the more weightThe shorter the EMA's period, the more weight

that will be applied to the most recent price.that will be applied to the most recent price.EMA = (Price (current)EMA = (Price (current) EMA (previous) ) xEMA (previous) ) x

Multiplier) + EMA (previous)Multiplier) + EMA (previous)

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Moving Average Pros & ConsMoving Average Pros & Cons

ProsProsDefines average priceDefines average pricechanges over time andchanges over time andsmoothes out tradingsmoothes out trading

noise.noise.Excellent trend tradingExcellent trend tradingtool.tool.Used to identify,Used to identify,triggers, entries,triggers, entries,support/resistance.support/resistance.Can be used in tradingCan be used in tradingsystems & backsystems & back --tested.tested.

ConsConsM/AM/As lag behind marketss lag behind marketsprice changes.price changes.Not effective in choppyNot effective in choppy

markets.markets.Not effective inNot effective indiscovering pricediscovering priceextensions.extensions.CanCan t predict turningt predict turningpoints like Fibonacci orpoints like Fibonacci orPivot analysis onlyPivot analysis onlychanges in trends.changes in trends.

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Input Choices to Average.Input Choices to Average.

HighsHighsLowsLowsCloseCloseOpensOpens

Average of range (HighAverage of range (High --Low)Low)

Average of typical price (HLC/3)Average of typical price (HLC/3)VolumeVolume

Volatility measurements (VXN, VIX VXO)Volatility measurements (VXN, VIX VXO)

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Trading Filters & SignalsTrading Filters & SignalsAn additional filter to trigger a signal on aAn additional filter to trigger a signal on aprice change would be if theprice change would be if the close close isisabove or below the moving average.above or below the moving average.

Another method is if theAnother method is if the entire rangeentire range ofofthe price components (O,H,L,C) arethe price components (O,H,L,C) aretrading above or below the movingtrading above or below the moving

average.average.

Another filter is if those factors are forAnother filter is if those factors are formore more than one session.than one session.

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Trading Filters & SignalsTrading Filters & Signals

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Notice the difference in the relationship ofprice to past data (OHLC) and the M/A.

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Trading rules and signals need to be formedTrading rules and signals need to be formedand can be programmed by most chartingand can be programmed by most chartingsoftware packages such as Genesis.software packages such as Genesis.

Most traders have a hard time making fastMost traders have a hard time making fastdecisions under pressure while examining thedecisions under pressure while examining theprice relationship and M/A price relationship and M/A s.s.

Also we need to include trade management Also we need to include trade managementtechniques to determine entry, risk, add ontechniques to determine entry, risk, add on

scale outs or flat out exit levels.scale outs or flat out exit levels.

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Time dimensions for moving averagesTime dimensions for moving averages

Several time considerations include lining theSeveral time considerations include lining themoving average with a specific time framemoving average with a specific time framesuch as the number 5 which equals a fullsuch as the number 5 which equals a fulltrading week. A 20 day and 40 day M/A trading week. A 20 day and 40 day M/A works out to one and two month movingworks out to one and two month movingaverage.average.

Day traders can break down the use of Day traders can break down the use of multiple time frame analysis such as a 15multiple time frame analysis such as a 15minute period and a 5 minute period (whichminute period and a 5 minute period (whichis divisible by 3)is divisible by 3)

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Multiple Moving AveragesMultiple Moving AveragesHelps identify shorter term and longer termHelps identify shorter term and longer termtrends and changes within those time frames.trends and changes within those time frames.

Can be used to identify support and resistanceCan be used to identify support and resistancelevels to help you increase profits and reducelevels to help you increase profits and reducerisks.risks.

Remember that the closing price causes aRemember that the closing price causes a

crossover: that is when a signal is generated.crossover: that is when a signal is generated.Also helps to identify overbought & oversoldAlso helps to identify overbought & oversoldconditions referred to as depart from the meansconditions referred to as depart from the meansand regression to the means.and regression to the means.

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CrossCross --over Signalsover Signals

Dead CrossDead Cross -- bearish or negativebearish or negativecrosscross --over of a shorter term M/A thanover of a shorter term M/A thana longer term M/A.a longer term M/A.

Golden CrossGolden Cross -- Bullish or positiveBullish or positive

crosscross --over of a shorter term M/A thanover of a shorter term M/A thana longer term M/A.a longer term M/A.

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Angle & SeparationAngle & Separation

When prices accelerate too far too

fast from the norm, we often pause,consolidate or regress to the means.

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Notice the gaps between prices and M/A?

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Trading versus Technical AnalysisTrading versus Technical Analysis

Technical studies such as Moving AveragesTechnical studies such as Moving Averagesand the aid of filters (confirming indicators)and the aid of filters (confirming indicators)are just a part of helping making a tradingare just a part of helping making a tradingdecision.decision.

Trading requires use of risk m anagement,Trading requires use of risk m anagement,patience or thepatience or the w aiting gamew aiting game as I call it .as I call it .

Trading also involves additional training onTrading also involves additional training onthe skills needed to know w hen to ex it or addthe skills needed to know w hen to exit or add

on to positions.on to positions.

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M oving Average Channels.M oving Average Channels.M oving Averages smooth out price changes, one can use them toM oving Averages smooth out price changes, one can use them toaverage out highs and lows or channels.average out highs and low s or channels.

One can use the average of highs and low s to determine the trendOne can use the average of highs and low s to determine the trendchannel, such as Keltner Channels, and apply exponential m ovingchannel, such as Keltner Channels, and apply ex ponential m ovingaverage to impress upon the most recent price data.average to impress upon the m ost recent price data.

Complicated channel bands would be a Bollinger band w hichComplicated channel bands would be a Bollinger band w hichrequires the calculation of a moving average and a standardrequires the calculation of a moving average and a standarddeviation of price over a period of time.deviation of price over a period of time.

A sim ple version w ould be to average the A sim ple version w ould be to average the HighsHighs andand lowslows ..

W atch for prices to trade above prior highs and the average of tWatch for prices to trade above prior highs and t he average of t hehehighs to confirm a buy signal, and w atch for prices to close belhighs to confirm a buy signal, and w atch for prices to close bel owowthe average of prior lows and the low s to confirm a sell signal.the average of prior low s and the low s to confirm a sell signal.

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Fibonacci as Moving Average SettingsFibonacci as Moving Average Settings

Traders tie in time periods with the FibonacciTraders tie in time periods with the Fibonaccinumbers series.numbers series.

1,1,2,3,5,8,13,21, 34, 55, 89, 144, 2331,1,2,3,5,8,13,21, 34, 55, 89, 144, 233

Futures traders use shorter time periods,Futures traders use shorter time periods,equity traders generally use longer termequity traders generally use longer termperiods.periods.

The shorter time periods are more sensitiveThe shorter time periods are more sensitiveto price changes.to price changes.

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www.nationalfutures.comwww.nationalfutures.com

SignSign -- up for a FREE strategyup for a FREE strategyguide to Moving Averageguide to Moving Average

Formulas.Formulas.

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As an exclusive special, includedAs an exclusive special, includedis a signed copy of my justis a signed copy of my justreleased Forex Conquered Book.released Forex Conquered Book.

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