Jul

20

It is rather interesting that the ubiquitous 200 day moving average (actually 40 week ma) still works at all, because everyone seems to know about it.

Larry Williams replies:

Technical indicators, I think, can be widely known about and still 'work' because of the frailty of humans; as a group we have problems with following/sticking to rules. We can all know we should not drink and drive, speed, do drugs, smoke, etc… but most violate basic rules.


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4 Comments so far

  1. Chris Monoki on July 20, 2009 3:03 pm

    And that's exactly why the 200-day moving average has meaning: because everyone knows it, follows it, believes in it and acts upon it, the perception is self-fulfilling and thus makes it real. Keep pressing, Chris Monoki

  2. K Anant Rao on July 21, 2009 5:07 am

    Yeah, I agree that 200 day moving average still works because it has been embedded into us as a sacrosanct line during the initial phase of learning. The media starts howling whenever the 200 Day MA is violated on either side and the common man on the street (nowadays even outside the street) starts following the 200 Day MA.

  3. Steinar Rune Eriksen on July 23, 2009 6:47 am

    In my impression, people (i.e. most of ‘em) don’t follow it, although they probably should. A lot of non-quantitative traders are either predominantly long or short and will always trade from their perspective. They ignore J Livermores wisdom of following the line of least resistance. They could easily use the 200 MA as a guide on whether to buy on dips or sell on highs, but they don’t.

    So essentially, everyone knows about it, but generally don’t follow it.

  4. Gangineni Dhananjhay on July 26, 2009 5:30 am

    How to find the path of least resistance . Is it subjective to the traders’ assumptions or any statistical basis for surmising it .The path of least resistance for a trader may be a path of highest resistance / pain for another trader.

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