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Trading Tools and Tactics: Reading the Mind of the Market by Greg Capra

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Chapter 4

Moving Averages the Right Way

Visual Aids to Price Action

Before I introduce the concept of moving averages, let's look at where we are at this point. I have already discussed that price is the true king to all technical analysis. We also discussed the fact that various technical indicators that many traders like to use are subjective and are in fact not very useful. In addition, there are really only three things that I like to see on any chart, and only three things that I put on my charts:

  • Price: My charts are dominated with a large picture of the price pattern. We discussed that in Chapter 3.
  • Volume: I keep volume at the bottom of my charts, which we discuss in Chapter 5.
  • Moving Averages: In addition, overlaying the price pattern I have two or sometimes three moving averages on my charts, which we discuss in this chapter.

Technically, moving averages are a technical indicator (no pun intended). Therefore, a moving average is an exception to my “no technical indicator” policy. However, when you see how we use moving averages, you will discover why they are an exception and are only used as a visual aid to price action, not an indicator of it. Simply, I use them as a tool to speed up the analysis that I could do without them though, as you'll see, not for the same reason most traders do.

A VALUABLE TECHNICAL MEASUREMENT

Moving averages (MA) are one of the most widely used and discussed technical measures in existence. Just listen to the financial news channels or ...

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