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MOVING AVERAGES
DON'T WORK!!!
BHARAT JHUNJHUNWALA
CMT, CFTE, MFTA, MSTA
What is a Moving Averaage?

A moving average (MA) stands as a frequently used stock indicator within the
realm of technical analysis. The purpose behind computing a stock's moving
average lies in its ability to refine price data, achieved by continuously
establishing an average price that adapts in response to changes.

Through the computation of a moving average, the disruptive effects stemming

from random, short-term fluctuations in a stock's price over a defined
timeframe are alleviated.

Moving averages (SMAs) involve a basic arithmetic mean of prices across a

designated span.
Where do we go wrong using Moving Averages?

Ignoring the market structure when applying moving averages.

Using Price & MA crossovers.
Using the same averages on all instruments.
Using similar settings on all time frames!
Moving Average is a Trend Following Indicator!

The moving average serves as a trend-tracking tool, yet proves ineffective in

sideways markets. During market stagnation, its effectiveness diminishes as it
struggles to capture meaningful trends, making it less reliable for guiding trading
decisions.
HOW TO IDENTIFY TRENDS?

Identification of Trends can be done in 2 ways:

Using the market structure (Price Action)
Using Trend Strength Indicators
Using Moving Averages & Price Crossovers:

Relying solely on moving average and price crossovers is an inadequate strategy.

In periods of volatility, price often intersects with the moving average, leading to
misleading signals.

To enhance accuracy, it's crucial to employ a cross and retest method or combine
price structure breaks with the moving average analysis.
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Using the same averages on all instruments.

Distinct stocks, commodities, and forex pairs possess unique characteristics

and volatility levels.
Employing identical averages and observation periods universally proves
ineffective.
Additionally, the suitability of the same parameters differs between uptrends
and downtrends, emphasizing the need for tailored approaches to each market
situation.
20 DMA ON NIFTY
 There is nothing like the Best Moving Average or the Best Settings!
The selection of the MAs will depend on the conditions of the markets!
In powerful trends:
10-20 DMA behaves properly

In trends when retracements are deeper:

50 DMA behaves properly

During strong corrections:

200 DMA is good
Moving Averages on different time frames.

Applying identical lookback periods for moving averages across all time frames
is impractical. While a 20-day moving average might suit daily charts, it won't
necessarily yield comparable results on hourly or weekly charts.

It's advisable to avoid using moving averages on time frames shorter than daily;
instead, rely on pure price action.

For weekly charts, choose suitable moving average settings for accurate
analysis.
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