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Moving Averages
Mickey
Posted: 03 October 2017 13:50:39(UTC)
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I was looking at my Pacific Assets Trust after mentioning it on SaraG's post and out of curiosity I looked at the 50 & 200 day moving average for the Trust. perhaps I shouldn't as it confused me somewhat. Does anyone use the moving average figures when looking at IT's.

I was wondering if the averages were at all relevant for a collective such as Pacific Assets and if they are then whether the simple, exponential or weighted figure was the most relevant. I didn;t want to get bogged down with 'charting' but perhaps it could be of value?

Any advice welcomed,
Mickey
Tug Boat
Posted: 03 October 2017 16:21:48(UTC)
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Any filter is a means of extracting the signal from noise. They all use time or old values to give a clearer representation of data.

They do not predict the future.

Some signals are so noisy that the underlying signal cannot be seen by eye from a graph when the data is plotted. A filter can be designed to extract the signal from the data.

When you look at moving averages and visually extrapolate the line it gives the impression you can predict where the stock is heading. However, stocks are not yaw rate sensors.

This is very short term and never works for me.

There's a lot of bollocks spouted about when this crosses that and its Thursday and there's a full moon, it's a buy signal. I think the rune-stones are just as good.
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Micawber
Posted: 03 October 2017 17:23:44(UTC)
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Looking at a simple moving average (I use 150 days) is one of the several things I do when first assessing a stock (and weeding out less attractive ones), and once I have decided I might want to own it then looking at the chart (moving average, MACD, RSI) is *one* of the things that help me decide when it might be a good or bad time to take the plunge and buy the stock. I like to take into account all readily accessible information and metrics. But I am very resistant to the high priestery of charting.
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Chris Howland on 03/10/2017(UTC), Mickey on 04/10/2017(UTC), Guest on 05/10/2017(UTC)
King Lodos
Posted: 03 October 2017 19:20:42(UTC)
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The basic challenge is working out whether something's going up or down .. Moving averages are a crude, quantitative method of doing that.

And the advantage of a quantitative method is that it allows you to set rules – e.g. get out below the 200 day; buy when it breaks above the 200 day .. And the advantage of rules is that otherwise you're relying on psychology – and most exploitable weaknesses in markets have something to do with psychology. (much like poker)

So back in the 70s and 80s, people got extremely wealthy off simple moving-average-based trading systems, because the systems could make simple, emotionless decisions: they didn't hang onto losers too long, get greedy, get fearful.. they just stayed invested in uptrends, and sat in cash when there weren't any.


Where specific SMAs tell you something (whether they really give you an edge or not) is in Large-Cap US stocks, in dollars .. Because so many people use SMAs in the US, a market going below the 200 day is a recognised bearish sign – and you can be relatively safe buying when a stock's bouncing off an uptrending 200 day, because there'll be support for it .. In the UK, it doesn't necessarily mean anything, because currency's distorting things, and lots of UK stocks are being traded in dollars.

So in Sterling, we see the whole investment universe through a hall of mirrors .. So you could currency hedge everything to dollars, but I seem to get on okay these days just looking at charts .. You learn what a trend looks like, and appreciate most the time markets aren't *really* trending
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Tony Peterson
Posted: 03 October 2017 19:28:08(UTC)
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There really is no end to the bollocks spouted on these threads. There is no predictor of tomorrow;s prices.

Nobody knows what will happen tomorrow. But, reacting to what happened today , I have done quite nicely thank you.
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Hank Elvis Dobbs (texan) on 03/10/2017(UTC), Mickey on 04/10/2017(UTC), Keith Cobby on 04/10/2017(UTC), t s on 04/10/2017(UTC), jeffian on 04/10/2017(UTC), Guest on 05/10/2017(UTC)
Hank Elvis Dobbs (texan)
Posted: 03 October 2017 19:33:13(UTC)
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I find investing very simple ...mind you i've had a lot of practice..better to keep it simple ..

"patronising bastard"

good point
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King Lodos
Posted: 03 October 2017 20:05:37(UTC)
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Unless they're based on quantum principles, Tony?


Markets will probably always trend – partly because volumes aren't infinite .. So if an institutional investor wants to exit a position, it may take months/years .. If you just dump $10 billion of Coca Cola shares on the market, you'll destroy the price before you've sold a fraction .. So large investors tend to buy and sell slowly, trying not to exert too much influence on the prices (although some investors might deliberately influence prices).

And secondly because people like investing in rising markets (and vice versa falling markets), so markets tend to behave in a greedy or fearful manner .. So what you're really trying to do is find a way to measure trends of unspecified frequencies .. Or make up some unverifiable nonsense about quantum physics and fail to measure your returns properly.
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Mr Helpful
Posted: 04 October 2017 07:50:41(UTC)
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Someone with better maths background please correct if this is the wrong end of the stick.

Moving averages seem to be a way of displaying for the layman, the rate of change of a price, i.e. the speed (the 1st derivative), then using two MAs the accel/decel (2nd derivative), or using MACD (moving average convergence/divergence) the thrust +ve or -ve (3rd derivative). These assuming regular cyclic behaviour (a big ask), would be an early warning system to anticipate/forewarn the change in price.

Think where the disrepute (the afore mentioned 'bollocks') arises for Technical Analysis (Chartism) is assuming it can reliably predict the future esp from patterns..
What it does do is tell us the relative price today and the history of how today's price was reached. From that information esp when combined with fundamentals, repeat combined with fundamentals, an investor can weigh up probabilities, but not certainties about the future.

With some assets such as Gold or Coffee or Pork Bellies, TA seems to rule as there is little fundamental to guide decisions.

Personally prefer 'envelopes' (which are MA derived).
Shows very simply the trend and when perhaps overbought or oversold.
Sometimes use as a final check when fundamentals have indicated possible action.
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Mickey on 04/10/2017(UTC), Guest on 05/10/2017(UTC)
lynne shaffer
Posted: 04 October 2017 10:18:25(UTC)
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What is the simplest way of finding out the moving average of a share?
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Mr Helpful on 04/10/2017(UTC)
Tony Peterson
Posted: 04 October 2017 10:37:39(UTC)
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It all depends, lynne, what date you start at.

A simple, no-calculation, way is to take a ruler to the graph of the share price between your start date and (presumably) the present and rotate the ruler until you have as much area above the ruler as you have beneath it.

Wowee. Trend line between those dates. Moving average. Utterly useless as predicting tomorrow's or other future price moves.

According to the moving averages from the year 2000, Vodafone, BT, LBG and GSK are heading southwards.

According to the moving averages from 2009 the moving average of all four is rising cheerfully.

Moving averages are about as useful as crystal balls, tea leaf patters, and palm readings.



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King Lodos
Posted: 04 October 2017 10:54:52(UTC)
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Tony Peterson;51733 wrote:
According to the moving averages from the year 2000, Vodafone, BT, LBG and GSK are heading southwards.

According to the moving averages from 2009 the moving average of all four is rising cheerfully.


Tony, it's clear from this you have absolutely no idea what moving averages are used for.

You're constantly angry at the world for being 'stupid' – but the world can be a bit of a mirror .. Try reading a book
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Guest on 05/10/2017(UTC)
jvl
Posted: 04 October 2017 11:49:35(UTC)
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[**Gets popcorn and coffee. Turns off phone, puts on comfy slippers and settles down in reclining chair to watch some KL-TP entertainment**]
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Mr Helpful
Posted: 04 October 2017 15:44:57(UTC)
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lynne shaffer;51730 wrote:
What is the simplest way of finding out the moving average of a share?


A deceptively simple question !!! ???

Moving Average Definition : 'a succession of averages derived from successive segments (typically of constant size and overlapping) of a series of values.'

A bit of a chore to carry out, but Hargreaves Lansdown site amongst others will do all the heavy lifting and display the results.
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jvl on 05/10/2017(UTC)
Tony Peterson
Posted: 04 October 2017 17:35:07(UTC)
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It is not a deceptively simple question.

A moving average is the average share price over a selected time scale. Simple.

It is the selection of the time frame that determines how "good" pr "bad" the trend looks.

The concept is total garbage. Useless. Nobody knows what will happen tomorrow. Though I am very happy with what has happened today, yet again.
kWIKSAVE
Posted: 04 October 2017 18:08:29(UTC)
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Tony

Time to put a little into Centrica ?

Nigel
King Lodos
Posted: 04 October 2017 18:09:16(UTC)
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Here's a simple example with the NY composite index, the 200 day moving average, and the period leading up to the financial crisis.

http://d.stockcharts.com/school/data/media/chart_school/technical_indicators_and_overlays/moving_averages/mova-8-nyasupp.png

The two things that tell you you're in an uptrend are the price being above the 200 day, and the 200 day itself being in an uptrend.

So you see from 2004 to midway through 2007, the uptrending moving average offers a support (a point to buy as it bounces off the 200 day) .. In Aug/Sep 2007 though, the price closes someway below the 200 day, which could suggest signs of the trend reversing (more people wanting to sell) .. And by the time the price is below the 200 day, and the 200 day itself is downtrending, you want to be out of the market (and perhaps buying bonds).

Bear in mind again that Sterling also trends against the dollar, making our moving average signals less clear – and if you're jumping in and out of the market, unclear signals are a problem, because you risk getting whipsawed a lot.

Whatever indicators you use, what really defines your success is how you implement them .. You'd want diversification, risk management, some way to deal with whipsawing (I buy and sell in increments – so getting out of the market will be a sequence of decisions, that can be reversed at any point) .. In fact look up the Tom Basso Coin Flip – buying and selling completely at random can be very profitable when combined with good money management
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Tony Peterson
Posted: 04 October 2017 18:52:30(UTC)
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Nigel

I certainly did today, in ISA, funded by some good short term gains in LBG.

And in time to collect next month's dividend too.

I wonder what wonders tomorrow will bring? Moving averages won't be any help.

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Mickey on 05/10/2017(UTC)
King Lodos
Posted: 04 October 2017 19:19:52(UTC)
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The last time Tony and I compared annual returns he wept on my answerphone.

He's still the best Bridge partner I've ever had – but incredibly stubborn.
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The Spanish Inquisition
Posted: 04 October 2017 19:48:47(UTC)
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Lynne, as you can see charting seems to be a bit of a hot potato on this forum, I personally love charts but it takes years to fully understand them..then you find out something new and you feel like a novice haha.
A 200 dma on a historic chart will throw up all sorts of opportunities for entry and exit points but because of the way they are calculated in 'real time' the line moves from day to day so a price moving above an average could, a few days later mysteriously still be below therefore invalidating your entry point!!!! If your interested in moving averages then look at stockcharts.com site, if you want to look up a UK equity then simply put 'dot' L after the epic. freestockcharts.com is my go to site for long term dow and S$P data. I wouldn't ever buy or sell purely on a chart signal, as I said in real time they are ephemeral. As others have said no one knows what lies ahead, an accounting scandal, takeover bid or disruptive tech can all put a spanner in the works or make you picks seem like pure genius.
Hope this helps a little.
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The Spanish Inquisition
Posted: 04 October 2017 22:07:54(UTC)
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Mickey;51691 wrote:
I didn;t want to get bogged down with 'charting' but perhaps it could be of value?

Any advice welcomed,
Mickey


I just use a simple 200 day ma on the HL site in a weekly time frame. Other sites a 40 sma on weekly data. Its nice to see your IT trending above the ma but really thats all. RSI, Stochastics and macd, well to be honest don't bother. Having looked at the PAC chart it does have something I always insist on, that its climbed above its 2007 highs. I feel it shows that management can overcome major difficulties and recover 'your money' over time, which it has done. Another of my 'must haves' is a rising divi so on that basis PAC wouldn't be for me but thats only my opinion, I tend to be a buy and holder so that colours all my thinking.
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Mickey on 05/10/2017(UTC)
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