• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint

A moving picture

Any one price is like a snapshot in time that can never tell us what the trend is. It does tell us something, but hardly the whole story. When you take 10 photographs in rapid succession, you can get a better picture of the whole story. If the story is the market, you get a better picture of the true trend by looking at the last 10 prices, as opposed to looking at just one. When you put together a series of, say, 20 blocks of 10 photos each, you then have a movie that is infinitely more informative than a photo or two. This movie is analogous to a moving average line, one that can be overlaid on a price chart. By observing the direction this line is moving and the strength (or velocity) of the move, the line can give you a sense of which faction is stronger at the time, the bulls or the bears. If the bulls are stronger than the bears, the moving average line appears to move up, and the current price trades above the MA (and vice versa). The tough question when using TMVTT is how many prices it takes to provide the best feel for the trend. If you use too many, the old data can tend to put the true trend out of focus; use too few prices, and you cannot really tell what it is you're looking at.

It's important to remember that when you utilize any trend-following method, you're not trying to forecast when a market move will start or end. Instead, you are using a completely technical approach that relies on a specific type of indicator to tell you what the trend is. By taking a market position in sync with this trend, you are attempting to place the odds in your favor. It would also be nice to have this indicator alert you, with some degree of reliability, when the trend has changed before you give back too big a chunk of your paper profits, or before any unrealized losses become too serious.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint