Moving averages are a popular, almost necessary charting tool. The 5 18 20 50 200 300 simple moving averages of closing prices are found on almost any analysts chart. Used to easily identify the direction of short term and long term trends. Often, they are misused as exact buy or sell points. The concept of moving averages is ancient according to statistics I made up for this paragraph. If anything moving averages are used today by HFT algo builders to identify where they can inflict the most damage to the dinosaurs that still put their stops just below them. We will never know for sure, but we must at least assume the possibility that the 19 year old quant grad from MIT that Goldman just hired to write their next algo learned about the 50/200 cross of death when he was nine. He is also writing his software based on the fact that you still use it as gospel. My cynicism does have a point, and that is to be open to new possibilities and ideas. I have not seen this presented before in officially. Perhaps, such a simple concept is overlooked. As I scroll through countless charts with the parameters I can’t help but notice it has some validity.
This is an expanded form of a Ribbon study in which simple moving averages are colored equally and spaced by increments of five. When applied to a daily candle chart they produce some interesting effects that offer further investigation. Instead of exact price levels, and perpendicular trend lines, these parameters reveal waves or “ripples” on the ribbon that continue into infinity. These waves or “ripples” often become relevant in future price action. Here are some observations noted on current price charts.
Written By: Hugh Bowie