Clarification req: Triple crossover method

bvpraveen · #1 8th May 2006, 11:46 AM

Hai,

While I was learning, I came to know that moving average will work good
on trends. When I tried one example of Satyam computers, I came up with
the attached chart: I used 4,9,18 moving averages.

Clarification needed: Sell signal will be issued when 4-line is below both 9-and 18-lines and 9-line is also below 18-line. Buy signal when 4-line is above both 9-and 18-lines and 9-line is also above 18-line. But if you notice the chart(circle spot), it signals a sell signal although from the chart it seems it shouldn't. ie in the long term the sell signal should appear later.
So how reliable is Triple crossover method?

[I'm a learner and please bear with any silly question if you feel they are]

Praveen.

sharmaraj · #2 9th May 2006, 10:04 PM

hello praveen

please bear me if i m wrong , just sharing my view

u have selected daily charts and moving average 18 9 and 4

moving average leads to many whipsaw and on daily chart just relying on moving average cross over may not be a best choice

volume too declining showing end of bear phase stock may rise .

how ever we shud use atleast two different indicator, moving average being trend fallowing we can add rsi or any momentum indicator

macd act as momentum as well as trend fallowing we can think of that too.

i choose macd 2 EMA 22 and 10,

how ever relativeness between volume open intrest and price quickely give sharp clues about preveling or reversal of trends

with regards
rajesh sharma

bvpraveen · #3 10th May 2006, 12:32 PM

Thank you for your comments, Rajesh Sharma.

Praveen.

sramrutia · #4 20th October 2006, 05:00 PM

Quote:

Originally Posted by bvpraveen

Hai,

While I was learning, I came to know that moving average will work good
on trends. When I tried one example of Satyam computers, I came up with
the attached chart: I used 4,9,18 moving averages.

Clarification needed: Sell signal will be issued when 4-line is below both 9-and 18-lines and 9-line is also below 18-line. Buy signal when 4-line is above both 9-and 18-lines and 9-line is also above 18-line. But if you notice the chart(circle spot), it signals a sell signal although from the chart it seems it shouldn't. ie in the long term the sell signal should appear later.
So how reliable is Triple crossover method?

[I'm a learner and please bear with any silly question if you feel they are]

Praveen.

sir,
u will get good results if bolinger band for at least 10 trading session is very thin and 4 cross 9 (exponential).
sagar patel

asnavale · #5 20th October 2006, 10:02 PM

Quote:

Originally Posted by bvpraveen

Hai,

While I was learning, I came to know that moving average will work good
on trends. When I tried one example of Satyam computers, I came up with
the attached chart: I used 4,9,18 moving averages.

Clarification needed: Sell signal will be issued when 4-line is below both 9-and 18-lines and 9-line is also below 18-line. Buy signal when 4-line is above both 9-and 18-lines and 9-line is also above 18-line. But if you notice the chart(circle spot), it signals a sell signal although from the chart it seems it shouldn't. ie in the long term the sell signal should appear later.
So how reliable is Triple crossover method?

[I'm a learner and please bear with any silly question if you feel they are]

Praveen.

Hello Praveen,

The system has shown the Sell signal correctly though it is not acceptable. The reason is as follows:

The Moving Averages (simple or exponential) are lagging indicators. That means they generate the signals after certain delay. The delay depends on how steep is the trend. In not so steep trends the delay is generally half the period of moving average. In multiple moving averages the delay depends on longest period moving average. This is not a hard and fast rule but a general one. You have used 4, 9 and 18 days for moving averages. So the delay would be about 9 days. (Half of longest MA period. It can be less depending on the trend). That means you get the Sell signal (or Buy Signal) after a delay of upto 9 days. If you magnify the chart of Satyam you can see that the cross over was generated on 18-8-05. So the true selling day is about 9 bars before. So it is around 4th August. If you see the chart you can see that the highest price was on 4th August. In a long trending period the delay may not make much difference but in short terms you would get the signal to sell when the price is lowest and buy signal when the price is highest. One method to reduce the delay is to use shorter periods for moving averages, but they generate more false signals. So you can not depend only on moving average crossovers. The cross overs should be used to confirm the signals generated by other indicators. I hope you now understand why the signal appears in wrong place.

-Anant

bvpraveen · #6 26th October 2006, 09:55 PM

Hi Anant, Sagar,

Thanks for your reply.

I had this novice doubt when I started learning TA, some 4 months back. Now I can understand it fully.

Thanks for your effort, Friends.
Praveen.

ash.investor · #7 1st November 2006, 08:59 PM

Hi Praveen,

What I would suggest is used ADX indicator. This indicator is a trend indicator. This will not indicate whether the price will go up or down, but will determine if the price is in the trending mode or in a trading mode. When ADX > 25 and is rising it indicates that there is a trend in the market. In such a case used trend following system. But if ADX < 25, then better use leading oscillators like RSI or CCI.

Also, I believe in day trading there is lot of volatility than trend, so better go for momentum oscillators. the only downside of these indicators as compared to MA Crossover system is that they generate frequent buy and sell signals out of which some are false, making it difficult to execute the trade.

So I suggest go for a combination of 2 indicators. The first indicator should give an early signal and the second indicator should confirm the signal making it covenient to trade andtake decisions.

Regards,
a$h.investor

bvpraveen · #8 3rd November 2006, 10:34 AM

Hi Ash,

Thanks for your comments. At present, I'm working with another kind of MA crossover. Karthickmarar had mentioned in his thread - "Experiments in Technical Analysis", that MA Crossover systems works better without including ADX. He has experimented it.

Anyway I've not tried it yet. I will try out the above options, and will let you know about the results.

Thanks,
Praveen.

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