V.11:10 (427-431): The JSA Moving Average by George R. Arrington, Ph.D.

V.11:10 (427-431): The JSA Moving Average by George R. Arrington, Ph.D.
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The JSA Moving Average by George R. Arrington, Ph.D.

Presenting the JSA, a unique moving average that could provide an early warning that other technical indicators may have an impending signal. In addition, comparing the JSA with other moving averages raises interesting questions about the information that moving averages in general provide.

Most traders use moving averages to identify underlying price trends and to help signal the timing of a trade. In slow- moving markets, the three most common moving averages (simple, linear and exponential) may do just fine. But in fast-moving markets with sudden and large price changes, the JSA moving average may be a better indicator to watch.

COMPARISON OF MOVING AVERAGES Figures 1 and 2 illustrate the simple, linear, exponential and JSA moving averages. (The calculation for each average is explained in the sidebar, "JSA calculations," but the JSA can be defined as

(P1 + Pn) / 2 in which P = price.)

The price series is the same in both Figures 1 and 2, and price changes are exaggerated to illustrate the differences in the averages. To summarize, prices rise slowly at first; then a large spike increase is followed by a large decline; then prices stabilize.

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