When I worked as a professional technical analyst at major banks, I often encountered two common questions: Did I optimize my moving averages, and why did I use a 55-week and 200-week moving average?
To address these queries, I've created a short video. The answer is that I never optimized the moving averages. Firstly, moving averages have a lagging effect, and secondly, when optimized, they may work well for a short period but eventually lose effectiveness. Therefore, I never relied on them as a sole basis for entering or exiting trades. Instead, I used them to confirm my existing views.
However, moving averages do serve a purpose, especially if you find ones that work well for you. In my case, I found that the 55-week and 200-week moving averages were effective. Firstly, I observed that several markets tended to revert to these long-term moving averages (I analyze numerous charts regularly). Secondly, the 55-week moving average approximates to around one year of data, while the 200-week moving average approximates to around four years. This is significant because many clients pay close attention to these long-term moving averages. My speculation is that the United States, being one of the largest markets globally, experiences presidential elections every four years, which impacts the US Dollar and, consequently, other markets.
Examining the Wheat chart, you can see the impressive performance of the 55-week and 200-week moving averages during the bull market. They consistently supported the upward trend. However, when the market began to break below the 55-week moving average, it indicated a potential end to the bull trend. Subsequently, when it broke below the 55-week moving average for the second time, it confirmed the conclusion that the bull move was over and the trend had turned negative.
Presently, rallies to the 55-week moving average are failing. This conveys crucial information: Wheat is not only in a bearish trend but also suggests that any upward movements towards the 55-week moving average should be viewed as opportunities to sell.
To address these queries, I've created a short video. The answer is that I never optimized the moving averages. Firstly, moving averages have a lagging effect, and secondly, when optimized, they may work well for a short period but eventually lose effectiveness. Therefore, I never relied on them as a sole basis for entering or exiting trades. Instead, I used them to confirm my existing views.
However, moving averages do serve a purpose, especially if you find ones that work well for you. In my case, I found that the 55-week and 200-week moving averages were effective. Firstly, I observed that several markets tended to revert to these long-term moving averages (I analyze numerous charts regularly). Secondly, the 55-week moving average approximates to around one year of data, while the 200-week moving average approximates to around four years. This is significant because many clients pay close attention to these long-term moving averages. My speculation is that the United States, being one of the largest markets globally, experiences presidential elections every four years, which impacts the US Dollar and, consequently, other markets.
Examining the Wheat chart, you can see the impressive performance of the 55-week and 200-week moving averages during the bull market. They consistently supported the upward trend. However, when the market began to break below the 55-week moving average, it indicated a potential end to the bull trend. Subsequently, when it broke below the 55-week moving average for the second time, it confirmed the conclusion that the bull move was over and the trend had turned negative.
Presently, rallies to the 55-week moving average are failing. This conveys crucial information: Wheat is not only in a bearish trend but also suggests that any upward movements towards the 55-week moving average should be viewed as opportunities to sell.
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