Most models are based upon a moving averages system. Some are quite complicated and ingest large numbers of variables . A bead is drawn on a trend direction by most models after it ocurrs and will keep you in the market as long as the trend is unchanged . A few moving averages try to predict any trend changes. These are gainful to a trader that is properly capitalized who is able to start a position that is recommended and may be beneath more losing trades.

A stock technical analysis course will teach that the idea behind a moving average ( MA ) is figuring when the price direction differs from recent price averages. If the price that is current stays about the price average of the last 10 days, 20 days, or even 90 days the trend continues . The most ordinarily observed average is the MA of closing prices for 10 days . The benefit of this method is that it gives equal weight to each day’s price . The MA assumes that yesterday’s prices and those from last week get the same importance with a trader.

This does not conform to reality . There is a limited horizon for a short term trader. Commodity prices do vibrate more rapidly than the prices of most other investment forms , therefore, a shorter series usually performs best .

An ideal MA should :

1) should be able to observe a major turn of a price trend at once and not days later
2) the MA plot shouldn’t be so close to the daily prices plots that people are lashed into minor swings and consolidation .
3) this MA plot must be malleable to the volatility of the specific commodity.
4) if the commodity locks limit the MA plot should be responsive .

The problem with this approach lines for MA can be too slow to use as an indication of reversal. Most of the time, MA technicians have their trading decisions guided by changes in the price market relative to the moving average line . The more sensitive the moving average the smaller the degree and amount of the advance differential and the larger the number of sell and buy points , which leads to a lot of whip-saw and some small losses as learned in a stock technical analysis course.

Of course , the shorter the time span , the more sensitive is the moving average to a trend termination of a reversal . New trends are acted on more quickly and don’t need as much time to get established . Yet , tarders usually pay for the sensitivity because , the shorter the moving average the greater is the number of trades that will be made and to whip-saw losses greater comissions are added.

So , moving averages has a delay in showing price trend turns. Often this delay is larger than you would see with than what occurs with point and figure charting, P&L charting, and the simple charts. The chief advantage of the moving average position is that the each trend of substance has the user automatically put on board (as do all trend following systems .)  You can find out more from a technical analysis course.