Moving averages and oscillators

[rookie]

I have a question regarding moving averages and oscillators and how they are used in daytrading.

I'm having a hard time grasping how to use them in live trading. for example, I notice both moving averages and oscillators dip/rise above/below a positive/negative line. Also, when a crossover occurs, they pull back and then they keep on going down again. I'm having a hard time understanding how I can time my entries based on these indicators. Then, when you look at past chart data, they always seem to be working great.

thanks in advance

[Leth]

rookie...mind if i ask what time period of moving average crossovers your are using? Also, what is the time period of your chart?

I ask this because.....there is a trade off between timeliness and following daily price fluctuations too closely. Traders that use moving averages to help identify the trend of a tradable security should determine an appropriate trade off that not only reduces whipsaws, but also minimizes the lateness and earliness of signals received. Does this make any sense?
Volatility can definately throw some stress on a daytrader. I'll be honest, I was never good at trading short term. But maybe this can help. Ive always had good experience when using a donchian channel. These are basically moving averages but with deviations that utilize support and resistance.

Here is a good page on the subject - http://www.chartfilter.com/reports/c35.htm (see example 2 below)

Now, if you can plot a donchian trend channel onto your chart; you can also try plotting a second one with a shorter time frame and use it as your trailing stop if you find it helpful; this allows you to take advantage of cutting your losses short. This method is also valuable as a price filter that keeps you out of some (but not all) volatile situations. play around with them on your chart and see what you come up with. (see example 1 below)

Example 1: 15 Day Donchian Channel as your buy/sell signal with an 8 Day Donchian Channel as a trailing stop. You can also use a 10 Day channel as a trailing stop instead of an 8 if you want to give your positions a bit more breathing room.

Example 2: 12 Day Donchian Channel as your buy/sell signal only. This would be considered a simple stop and reverse system.


hope this helps my friend

Leth

p.s. excellent question btw!!!

As always...this is only my perspective

[rookie]

hi leth,

first of all, thanks for your post. I had never heard of donchian channels before. I will definitely look into that.

with regard to your question on moving averages time periods, I'm using a 5-15 moving average crossover on 5 and 3 minute charts. Am I doing something wrong? Should I use a different setup?

thanks again

[Soverus Khan]

Originally Posted by rookie

hi leth,

first of all, thanks for your post. I had never heard of donchian channels before. I will definitely look into that.

with regard to your question on moving averages time periods, I'm using a 5-15 moving average crossover on 5 and 3 minute charts. Am I doing something wrong? Should I use a different setup?

thanks again

Rookie, what are you looking at for confirmation on the crossover? Same question for the exit trigger? Ashi bars, LH/LL, volume?

[fjords]

I remember I read an article awhile ago that mentioned that Ed Seykota used / uses donchian channels. Thank you for posting this...

Leth, if you don't mind me asking, what charting software do you use?

[Leth]

Originally Posted by rookie

hi leth,

first of all, thanks for your post. I had never heard of donchian channels before. I will definitely look into that.

with regard to your question on moving averages time periods, I'm using a 5-15 moving average crossover on 5 and 3 minute charts. Am I doing something wrong? Should I use a different setup?

thanks again

hmmm...from my perspective..it seems like it would be difficult to daytrade with MAs due to lagging. i do know they are great for EOD though.
the good thing about donchian channels is that they are pure price inidicators (not really considered indicators) which prevent false signals on recent price data. Not only are donchian channels good for longterm...but it looks like they would be good for day trading as buy/sell signals on support and resistance since they are so robust.
i wish i could be of more help my friend. to be honest, when i was swing trading a few years back, i never used MAs except for the 100MA and 200MA for overall trend direction. soverus or aiki may be able to give you a more detailed answer. if you have anymore questions...dont hesitate to ask.

hope this helps a little anyways...

michael

[Leth]

Originally Posted by fjords

I remember I read an article awhile ago that mentioned that Ed Seykota used / uses donchian channels. Thank you for posting this...

Leth, if you don't mind me asking, what charting software do you use?

fjords...ive been using Amibroker for quite some time. Its really user friendly, which is great for a simple guy like me who trades longer term. They do make a pro version that impliments RT data if im not mistaken. Did i mention it was inexpensive.
Donchian Channels, for some odd reason, dont usually get prepackaged with commercial trading software. But you can pretty much find the code for it somewhere on google (e.g. donchian code for metastock, donchian code for Tradestation, etc). Here is the code for a Donchian Channel in Amibroker...the default period is set at 20 days...but you can edit the code anyway you wish for time period and/or color....

pds=20;
DonchianUpper =HHV(Ref(H,-1),pds);
DonchianLower = LLV(Ref(L,-1),pds);

Plot(DonchianUpper,"DU",colorBlue,styleLine);
Plot(DonchianLower,"DL",colorRed,styleLine);

Enjoy

[rookie]

Originally Posted by Soverus Khan

Rookie, what are you looking at for confirmation on the crossover? Same question for the exit trigger? Ashi bars, LH/LL, volume?

I use candlesticks patterns and some basic oscillators.

this question might sound stupid: of the 3 things you mentioned, I only know volume what are ashi bars or LH/LL?

thanks

[Soverus Khan]

Originally Posted by rookie

I use candlesticks patterns and some basic oscillators.

this question might sound stupid: of the 3 things you mentioned, I only know volume what are ashi bars or LH/LL?

thanks

For the heiken ashi bars:

http://www.investopedia.com/articles.../04/092204.asp

LH/LL referes to lower highs/lower lows...Iwas referring to trend following as a trigger.

[rookie]

Originally Posted by Soverus Khan

For the heiken ashi bars:

http://www.investopedia.com/articles.../04/092204.asp

LH/LL referes to lower highs/lower lows...Iwas referring to trend following as a trigger.

thanks for the ashi bars link. with regard to LH/LL, I feel like an idiot now