Moving
Average
I
indicated that a friend of mine trades the 18 day moving average
quite successfully. A lot of people have asked me what that means
and can I explain it... and even if they could talk to my friend!
Since he is a pretty busy manufacturer of industrial equipment,
not inclined to begin a long dialogue with a large group, I have
attempted to provide the information for you here.
So,
due to popular demand, I am including a brief explanation of
the very simple theory of trading the 18 day moving average.
The two lines on the following chart are the 18 day and the 14
day moving average. You will find these on almost any chart that
you use. In this example, the 14 day and the 18 day moving average
are for practical purposes almost the same... so you can use
either one.
Looking
at the following graph, you will notice that in September the
Yen rises above the 'moving averages' giving us a buy signal.
Then in February, the Yen moves below the moving averages giving
us a sell signal. Then again in August, the Yen rises above the
moving averages giving us another buy signal. The first of January
the Yen moves abruptly below the moving averages again giving
us a sell signal.
However,
from January until October, the Yen is in a channel which does
not tend to go either up or down. Then in October 2000, the Yen
makes a breakout below the moving averages giving us a sell signal.