Uses multiple MAs instead of a single MA as trading signals.
Moving Averages for a security are usually used as trading signals. But many times, due to the short term fluctuation (noise) and the lagging nature , these signals are false (sometimes called head fake etc.). Multiple MAs based on several signals are sometimes used to enhance the accuracy of the signals.
In this strategy, two MAs based on two securities are used. To decide an up trend, each security's price has to exceed its MA value. This is treated as a buy signal. On the other hand, as long as one of the two securities' price is lower than its MA, a downtrend or neutral is declared. This is treated as a sell signal.
The following is a list of other possible applications of Moving Averages (MAs).
- Moving Averages Strategy for Equity: The standard MA strategy for various stock market indices or securities.
- Moving Average Short: Use Moving Average as a downside protection by shorting another security similar or related to the underlying security. Another similar strategy is the Momentum Hedge, which utilizes MAs are the downside protection for a momentum based portfolio,
- Moving Average With Signal: Use MAs from another security as the trading signal for the underlying security.
See Also
- Masonson, Les. All about Market Timing. McGraw-Hill Companies, 2003. pg 131-152.
- "Moving Averages", StockCharts.com - ChartSchool.
- "Moving Averages", Wikipedia.
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