By Brian J. Millard
Don’t quite understand moving averages, but think that you
could benefit from using them? Here’s how to understand
and apply moving averages to identifying trends in stocks.
Of all the technical indicators,
moving averages are perhaps
the most widely used and misunderstood.
as is usually the case, they may
be responsible for more losses
than any other indicator. Correctly
applied, however, they
can be the most versatile and
powerful tools available. The
reasons for failure? First, a poor
understanding of how stock
prices move, and second, a poor understanding of the
properties of moving averages.
It is important to note that if the user does not attempt to
understand how prices move, then applying any indicator is
a haphazard affair. Indicators tend to be developed by trial
and error, and without a clear understanding of how they
work, using them can lead to disappointing — and disastrous
STOCK PRICE MOVEMENT
The point-to-point movement model is based partly on the
one put forward by analyst J.M. Hurst a number of years ago
and partly on my own research. In this model, stock movement
is considered to be composed of random point-to-point
movement and complex cyclic movement. Point-to-point
movement is simply a generalization of the sampling interval
and refers to the change between one data point and the next,
such as “tick-to-tick,” “day-to-day,” and “week-to-week,” as
well as others.