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Step 1

Calculate both the 23- and 30-day EMAs (this is for the daily chart)

In today's trading world, the big funds have become the most significant market-moving factor. Although there is no hard data on this, I am confident that a majority of fund managers utilize moving averages of various lengths and varieties. Those managers with a shorter-term perspective seem to prefer at or less than a 20 period, and those with a longer-term perspective tend to prefer at or above the 50. I'm not aware of many who use more of an intermediate term approach, higher than 20 but lower than 50. It's my experience that with an intermediate approach, you can attain somewhat of an advantage to stay out of the way of the thundering herd and, therefore, react in a more agile manner. As a result, I've found the 23 to 30 period to be a perfect combination to use with the daily charts. Furthermore, I've found this time period to be dynamic. What I mean by this is that the methodology is useful over a diversified portfolio of non-correlated markets.

At our office, live quotes feed into our trading software. The computer calculates any moving average over any time period, and at the end of the trading day, we review the daily charts of the markets we trade with their respective 23 and 30 EMAs. The 23 and 30 tend to form a smooth channel or band that prices dance around. Charts 10.3 and 10.4 show what those 2003 crude oil charts look like with the moving average lines superimposed.


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