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Moving Average Chart (V)

Moving averages are used for market timing to produce low volatility strategies

Moving Average (MA) is a trend-following indicator. When price direction trend changes, MA changes. MA works well when the red line is in a strong uptrend or a downtrend. MA, like all trend-following indicators, is useless when the red line moves sideways trendlessly.

Disclaimer: No technical indicator can assure profits. As market conditions change, the interpretation and use of the indicator must change.

Exponential Averages Used

All moving averages used in FT Cloud are exponential averages of the adjusted closing price. The indicator is plotted as a series of vertical lines. The height and direction of the lines is the difference between the issue’s price and its moving average. When the price is higher than its moving average, the indicator bars are above the centerline. When the price is lower than its moving average, the indicator bars are below the centerline.

Buy and Sell Tics

Buy tics occur when the moving average’s distribution-adjusted closing price becomes lower than the issue’s distribution-adjusted closing price. This causes the bars to switch above the center line. Sell tics occur when the moving average’s distribution-adjusted closing price becomes greater than the issue’s distribution-adjusted closing price. This causes the bars to drop below the center line.

Parameters

Moving averages are used to produce low volatility, high return strategies.

The moving average (V chart) has three parameters which can be changed in the chart parameter settings (upper left hand corner).

  1. MA smooth length – This is a the master MA which we will apply a crossing MA or a filter.
  2. MA Cross length – When this check box is selected, a signal occurs where the MA Smooth crosses the MA Cross.
  3. MA filter percentage – The difference between the red tickers’s closing price and its MA Smooth value must exceed the filter percentage before a signal will be given. A signals occur where the red line moves above or below the average by the specified percentage.

Notes:

  • A filter reduces the number of signals especially during trendless periods.
  • Filter values between .01% – 1% are useful. Filter values between 10% – 100% have no practical value and may produce strange results.
  • Longer moving averages are good at judging long-term trends of equity funds. Short moving averages are good for judging trends in certain types of funds with good day-to-day serial correlation like BD-JUNK and REALTY family funds.
  • Moving averages can work well with volatile mutual funds, but stocks are generally too volatile for profitable use of moving averages.
  • A filter value of .5% means that the V chart does NOT give a signal until the difference between the moving average and the red line is more than 0.5%. This frequently happens and is useful in removing whipsaws during trendless periods.
  • A filter value of  0.1 means that the V Chart signals when the difference is more than 10%… his seldom happens and when it does the move has been so traumatic that the indicator is useless. 

Yellow Values

The V chart’s yellow value is set in a range between 100+ and -100. When the moving average is lower than 0, then the V chart has yellow bars below the center. When the moving average is higher than the 0, then the bars are above the centerline. This reported value for the most part matched FT4Web (rounding might impact values slightly).

The values are reporting the relative difference between the moving average and its reference line (the MA Smooth values) 

Coordination with the P Chart

The V and P charts produce the same signals when using the MA Cross. Signals generated by the P and V Chart should be identical and the resulting BH=, Ann=, SD=, etc. performance values should be the same.