Why Trading Moving Averages Fail? Nr. 1 Loser Indicator

[pipbanker]

I know a lot of you are using the most popular indicator in the Market (Moving Average). What you do not realize is that is that MA is the #1 loser in the market.
Don't get me wrong, all indicators are losers, but MA is the leader.
Here is the bottom line.Indicators are not really the problem. It is the instruction that comes with them and people that use them is the problem. Let's take for example MA.This is by far the most abused indicator in the world. It has lost so much money it should have been illegal to use it.
Incidentally, no one seems to realize that.Most trading system in the market follows the wisdom of the MA crossing strategy. 90% of trading system has some type of MA crossing scheme in it. Most indicators (MACD, Stoch, ADX, CCI) are build around that concept. That is why all indicators or EA (automated trading system) in general are garbage. Yes, I said it. They are all garbage.
What is the reason for MA cross failure? When looking at MA or any indicators based on MA one needs to understand that price does not care where your moving average is in relation to current price. Market does not care where moving average is pointing or if your indicator is overbought or oversold. MA cross happens too late for an entry and usually when you see the cross and ready to put on a trade the price will go the opposite direction. Tadah! Not again. And you will wander why? You did follow your trading plan as you were taught but there was another loss... Frustration? No, it is more than that...
Having said all that, where do a wanna forex trader should turn for help? The truth is there no one that can help you because the answer would be too simple for you to accept and follow. No one can help you except for yourself.
For example: I trade against everything that I have learned in forex trading classes. I trade against everything the books, the technical gurus, the TV, the market analysis, the news, even the TREND. Yes, I trade against the trend. So when I talk about trading most traders will stay away from what I am saying because it makes no sense to them. Others will hate me for making money trading against all the rules that market "gurus" preach.
I am going to share what I do and get some stones and mud thrown at me in the process. It should be fun to watch and read the comments I will be getting. So sit back and relax as I am going to unleash my sac of garbage.
Here is how I trade.
I only Buy Low and Sell High using my naked eye and simple support and resistance levels. I DO NOT USE MA CROSSING. IT IS DUMB TO USE MA CROSSING.
Bellow is a summary of what I do to prepare for a tradeand yes, I do trade without indicators )
1. I don't do any analysis on weekends or days before. When I open my chart I look at a Daily Time Frame. I am not too concern about all these technical analysis. They are too confusing and too boring for me to be wasting my time on. As you may already know, most of your trades are always ending up in the wrong side. So the forex market itself does not follow technical analysis when it comes to taking my money so why should I?
2. I determine the intermediate term trend with the H4 and H1 to see where the price is in relation to past price action. This is easy to do with your naked eye. No need for expensive indicator. If you are addicted to indicators then do like the others are doing. Drop a 200 EMA on your charts and say to yourself if the price is above the 200 EMA, the trend is up and if the price is below it the trend is down.
3. I look at where the price is located in relation the highest point in the chart and the lowest point. Or for new guy, this means the highest the price has been before returning back down and the lowest the price has been before returning back up. You can do all this with your naked eye.
4. I am waiting for the price to reach my levels to take the trade.
5. I do use 5M to spot and trade true support and true resistance.
6. I only risk less than 2% of my account on any trade.
7. I follow my stop loss rules no matter what.
And yes, sometimes I do trade even without all this stuff described above. Just be there in the right time and with right order. Sometimes I am lucky to reach my day target in first 5-10 minutes after session opening. This does not happen everyday, but this happens pretty often to mention it. With no indicators at all.
So if you want to learn trading the first step would be getting rid off anything that clutters your chart.
Now go ahead and crucify me. I might enjoy some of your comments.

And by the way, we have started a 2 week poll on this matter, please vote too if you have an opinion. Here is a screenshot for you to find the poll easier. http://screencast.com/t/a1siNRDpF9U


About 100 people voted already. The results will be posted here too in 2 weeks.

 

[humie]

most trading system in the market follows the wisdom of the ma crossing strategy

 

[pipsaholic]

I tested MA out they work however you need to go down to the 1-5 mins see the cross over get entry. Reason everyone says they lag is becasue they do on the 1-4 hour + charts. Do not use them on there own ONLY with market structure/price action. One guy on the forex factor claims he built a success client portfolio business around MA cross over.

 

[humie]

very interesting informations pipsaholic.

 

[Fxpipper]

This thread just made me grin, for er.. obvious reasons. And yes, EA is garbage for the trader who went out and bought one - always do manual trading! Any Updates, Pipbanker?

 

[pipbanker]

This thread just made me grin, for er.. obvious reasons. And yes, EA is garbage for the trader who went out and bought one - always do manual trading! Any Updates, Pipbanker?

Ok, we had this poll on our webpage:
"If you are trading with Moving Averages and indicators based on MAs, are you making profit?"
55% said YES
38% said NO
7% said Break Even

That is interesting result. First time I see that we have 55% winner rate opposite to what is believed about 95% losing in forex. Is not it great? According to this only 45% lose in forex.
What is really amazing, that people are able to make money trading with indicators... If there is 55% success rate in trading maybe me and others need to reevaluate what we do.
Personally, I was never able to make any money with indicators. Opposite to it, indicators were to guarantee losses. I can only attribute my success to clearing my chart and learning it from scratch. It takes time, effort, patience but it worked for me and my other students.
So, if I can add here anything it would be this. We had a vote and the result is opposite to what is known about forex and what I personally believe. However, it is not going to change what I know or how I trade. I just dont know anyone personally who make money trading indicators.
Cheers to all MA lovers.
Would be glad to hear other opinions.

 

[mr.gardner]

Firstly, thanks for sharing your valuable experience.
I totally support your opinion. That is why it is best to use trend lines and support/resitance instead of MAs. When I trade using MAs I am using the reverse logic. When the MAs cross each other and provide buy signal , I will sell with a little stop-loss .

Take care guyz!

 

[Learnforextradingin30days]

I think the most important lesson to take away from this thread is that there is no "One way" to trade the markets. Everyone processes information in different ways and has different goals. This the reason there are many different ways to trade and make money. I have said for years, "there are probably as many ways to trade as there are traders." Another misconception is the idea that 95% of all traders will lose their money and the other misconception is that indicators do not work. Pipbanker, I think you hit the nail on the head, it really depends on the individual who is using the trading system and how effective they are at producing profits.
Good thread.

 

[masudraj]

I think the foremost necessary lesson to require far from this thread is that there's no "One way" to trade the markets. everybody processes info completely different|in several|in numerous} ways that and has different goals. This the explanation there are many alternative ways that to trade and create cash. I actually have said for years, "there are in all probability as many ways to trade as there are traders." Another misconception is that the concept that ninety fifth of all traders can lose their cash and also the different misconception is that indicators don't work. Pipbanker, i feel you hit the nail on the top, it extremely depends on the individual who is using the trading system and the way effective they're at manufacturing profits.
Good thread.

 

[kevinturnbull]

MA is working quite well for me on the long term, for the day trading i dont use it. It will not work if you just use indicators, including some other resource like news or indices will make result better

 

[Dominator4fx]

MA is working quite well for me on the long term, for the day trading i dont use it. It will not work if you just use indicators, including some other resource like news or indices will make result better

Moving Averages will not give correct signals over short time frames. This happens as the changes in the liquidity and the market sentiments gets reflected late then expected.

So it is better to use them over long time frames only.

 

[UWC Neeraj]

most trading system in the market follows the wisdom of the ma crossing strategy

Their are a lot of different types of Moving Averages and the better ones are the EMA cross over since they are fast and are able to give the trading signals at the right times.

 

[pon]

MA Indicators

No individual indicator can give an early entry and exit. Using a combination, like, MA with zigzag and fibonacci, can indicate the high and low of the prices.

No strategy can be better than BUY LOW AND SELL HIGH.

Indicators don't fail, people fail and blame it on the indicators, charts and prices etc.

Psychology and money management are two major reasons. Nothing to do with indicators.

 

[mr.gardner]

I totally disagree that MAs are not useful. The problem is that all traders are strictly following the rule that when two or more MAs cross each other then this is an opportunity for reversal. You should look outside box. I use the MAs in a different way with some other indicators such as bollinger , SAR and bill William fractals and it works fine. Sometimes I play against the signals of MAs. Meaning that when I got a signal of crossing MAs for going long , I go short.

Yes, some of your statements are right.

 

[pon]

I totally disagree that MAs are not useful. The problem is that all traders are strictly following the rule that when two or more MAs cross each other then this is an opportunity for reversal. You should look outside box. I use the MAs in a different way with some other indicators such as bollinger , SAR and bill William fractals and it works fine. Sometimes I play against the signals of MAs. Meaning that when I got a signal of crossing MAs for going long , I go short.

Yes, some of your statements are right.

Well said. People do take "MA cross" literally, without looking at MA cross overs in higher time frames. What is a cross in one time frame, might not be a cross in higher time frame, but simply a retracement to meet the moving averages. Hope everybody knows that the moving average of the previously closed candle is the one to be considered. So, if i am looking at a moving average of H1 candle, i need to know if the H4 candle of that H1 candle is closed or not! I have explained the following example under "No Stop loss". Forgive, me as i don't have an idea how to link to it. I hope this is the one.
http://www.earnforex.com/forum/f9/importance-stop-loss-placement-forex-trading-9200-post28065/#post28065

 

[Dominator4fx]

Using the MA system of cross over is best as it gives us the ability to be able to know the trades over a longer duration of time.

 

[Alchemist]

It is possible to trade successfully with moving averages. I don't use them myself, but I know some traders who do.

One approach is to use a longer period SMA to indicate the overall trend, and use a shorter period EMA(s) to help with trade entries. You could use an MA crossover to enter a trade, as long as you only use it in a trend. Otherwise you are likely to get whipsawed.

 

[Dominator4fx]

It is possible to trade successfully with moving averages. I don't use them myself, but I know some traders who do.

One approach is to use a longer period SMA to indicate the overall trend, and use a shorter period EMA(s) to help with trade entries. You could use an MA crossover to enter a trade, as long as you only use it in a trend. Otherwise you are likely to get whipsawed.

When using the MA crossover system whether a SMA or a EMA we must use a longer time frame so that we are able to get more Profits

 

[Alchemist]

When using the MA crossover system whether a SMA or a EMA we must use a longer time frame so that we are able to get more Profits

Yes, setups on the longer time frames are more reliable. However, in order to profit with MA's I think it is important to trade only in the direction of the trend.