simple but very effective

(comments from discussion on trade 5
http://www.mudraa.com/singlepost.php?messid=74251)


dear vishu,

no doubt sma is a lagging indicator.

but this is exactly its strength.

had it been not lagging, it would be of no use to us!

let me explain with an example.

let us consider sma14/30min on 1 month chart

what does this sma line represent?

it represents the average of last 14 readings of price each separated by 30 minutes.

14 readings x 30min = 7 hours

one trading day = approx 7 hours

so sma14/30min represents the trend of 1 day on moving basis.

when the price suddenly changes direction

sma doesn't change direction so fast

as it is a LAGGING indicator

and hence the price CUTS ACROSS the sma line

thus indicating a probable change in

market's mood

when compared to its behaviour over last 1 day or so.

this is a signal of the change in the very short-term trend!

with the confirmation from other indicators

profitable trading positions can be taken

all thanks to

the sma being

a LAGGING indicator