It is my belief that a good reason novice traders apply technical analysis is that they have been told to which Stock price displays repetitive patterns to utilise to forecast future bargain movement. Whether or not this is accurate would be a topic for my article in future. Meanwhile, a major challenge on your novice traders is if they should rely on mechanised indicators to trade and if so, which technical indicator is the greatest.
In the course of seek for the "best" technical warning signs, almost 90% of first-time traders will somehow end up with moving average ("MA") in whose primary indicator. In issue, MA gains its popularity in technical analysis because it can be used as "dynamic" support but in addition resistance levels, i. k. they follow the rhythm for youngsters price movement of the Stock. I am also conscious of some novice traders creates MA as entry perhaps exit signals. How they do it is to use two MAs with a wide range of periods. A buy signal occurs when the shorter-term MA crosses through longer-term MA. A sell signal occurs when the shorter-term MA crosses inside longer-term MA. This trading technique is commonly known as Moving Average Crossover ("MAXO"). In this post, I will discuss from our experience three practical risks caused by using MAXO blindly by novice traders. It is important to note that there's no Holy Grail since trading. There is no in order MAXO will give us 100% profit margins.
Risk No. 1: MAXO is Trend Trading Technique
From my own , personal experience, when novice traders no money MAXO as a trading technique, they will blindly stick to the rules to open and close their positions because they are so eager to trade for profit soonest. I believe it is more important to understand the nature of work MAXO. Essentially, MAXO is trend trading technique. Should it be applied on a non-trending Stock, you can find lots of buy and then sell signals to be turned out. It can be awesome when novice traders see quantity of false signals and because of the affect their trading trust.
Risk No. 2: Which "Periods" to use does not matter
In attachment trading career, I have come across with different versions of MAXO because he use different periods with the shorter-term and longer-term MAs. Here are some examples: 8-21 (which means that your short-term MA is 8 periods together with long-term MA is 7 periods); 10- 25; 10-30; 12-36; 13-34; 18-40; 20-50; 50-150; 50-200; 150-200.
As you'll find, novice traders are special for choice here. Very little, this is not loyal. I respectfully submit that the presence of different versions of MAXO offers confusion. Rather than spending time to get the "perfect" pair of MAs, novice traders should understand that they will never find the "perfect" pair because bear in mind exist. As long where understand that MAXO is a kind of trend trading technique, it's not going to really matter which couple of MAs is used. The reason is that if the Stock is already in a trend, MAXO will continue to work generally. If the Stock can't be in any trend, MAXO won't work regardless of which a handful of MAs is used.
Risk Very little. 3: Exponential Moving Averages matched against Simple Moving Averages
Another drama for novice traders is whether exponential moving averages ("EMA") or just simple moving averages ("SMA") will provide better trading results. Once again, I have read many trading journals and some authors spent their to be able to test EMA and SMA to watch out for which one would much better than the other. My point is this - keep in mind that really matter which one you decide on. Instead, I recommend novice traders to measure consistent. If EMA makes it simple, stick to it in addition to switch to SMA. It goes therefore to their question whether novice traders begin to see the nature of MAXO. Should a Stock is in a person trend, MAXO will work generally nevertheless EMA or SMA is employed.
I hope you are actually aware of these practical risks assortment of MAXO as a technology trading technique. I wish you all highest in your trading trip.
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