Re: How would market (Sensex/Nifty) perform during next week 27/10/2008 to 31/10/2008
DJ123143,
200 bar MA on Monthly chart ? It made me thinking because I haven't seen it before hence started questioning myself? Just want to kickoff the thought process behind Moving Average indicator, I am writing this post.
Why do we use 200 dma on Daily bars ? Becuase it reflects 1 years average trend. Fund managers annual bonus depends on yearly performance, funds have to publish annual report (for regulatory reasons). With these points 200 day average makes sense.
Why we use 50 dma on Daily bars ? Becuase it reflects roughly 1 quarter of average trend. funds have to publish quartlery report (for regulatory reasons). reasonably long time to make any changes to improve annual performance. So, with these points 50 day average also makes sense.
Many monthly performance oriented people use 20day MA.
For daytraders, 200 bar MA roughly covers 3 days of timeframe (1 trading day = 5.5 hr = 66 bars of 5 min duration which very common day trading timeframe). 50 bar MA can roughly be used as indicator of 1 trading day.
When we apply these number 200 or 50 to other timeframes (like monthly, weekly), we need to ask basic question - does it make sense ? what is it going to measure/indicate?
With your execercise of 200 bar MA on Monthly chart, we are roughly taking average of price action of 4000 days , or 16 to 17yrs of average yearly trend. Does it make sense ? Does market participants use it? If you are not convinced then probably you are the only person trading this number and market partcipants care least about it.
(please don't take it personally, I am just trying to kickoff the thought process behind understanding the indicators well). I have seen this approach taken by many analysts when analysing long term chart. They apply 50 bar MA on weekly chart and write whole conclusion based on the foundation that is questionable. Probably thats why they are analyst, not trader.
Or is it that I am missing something that you see?
Happy Trading
DJ123143,
200 bar MA on Monthly chart ? It made me thinking because I haven't seen it before hence started questioning myself? Just want to kickoff the thought process behind Moving Average indicator, I am writing this post.
Why do we use 200 dma on Daily bars ? Becuase it reflects 1 years average trend. Fund managers annual bonus depends on yearly performance, funds have to publish annual report (for regulatory reasons). With these points 200 day average makes sense.
Why we use 50 dma on Daily bars ? Becuase it reflects roughly 1 quarter of average trend. funds have to publish quartlery report (for regulatory reasons). reasonably long time to make any changes to improve annual performance. So, with these points 50 day average also makes sense.
Many monthly performance oriented people use 20day MA.
For daytraders, 200 bar MA roughly covers 3 days of timeframe (1 trading day = 5.5 hr = 66 bars of 5 min duration which very common day trading timeframe). 50 bar MA can roughly be used as indicator of 1 trading day.
When we apply these number 200 or 50 to other timeframes (like monthly, weekly), we need to ask basic question - does it make sense ? what is it going to measure/indicate?
With your execercise of 200 bar MA on Monthly chart, we are roughly taking average of price action of 4000 days , or 16 to 17yrs of average yearly trend. Does it make sense ? Does market participants use it? If you are not convinced then probably you are the only person trading this number and market partcipants care least about it.
(please don't take it personally, I am just trying to kickoff the thought process behind understanding the indicators well). I have seen this approach taken by many analysts when analysing long term chart. They apply 50 bar MA on weekly chart and write whole conclusion based on the foundation that is questionable. Probably thats why they are analyst, not trader.
Or is it that I am missing something that you see?
Happy Trading
