Moving Averages pt.3

We have to ask at this point, how useful are the moving averages? Following a prescriptive approach, they can be useful. It is not uncommon for methods to be created where two moving averages crossing act as an indicator to enter into a trade. One problem with these methods is that they have already missed significant movements in the price. They detect momentum, but the majority of the momentum has already left because a large proportion of the traders have already taken advantage of the descriptive indicators present in the price.

That being said, if there is an indication that a section of the speculator community actually trade using crossing moving averages then it is possible that there could be two descriptive  entry points; one just before the initial movement, and then a further when two specific moving averages cross.

The fact that moving averages are used as lines of support and resistance in graphs suggests that some traders use moving averages in their strategy. For example, if the 200 SMA is moving upwards, generally, the price will be reasonably higher than the moving average line. However, occasionally the price and moving average will meet and some will see this as an indicator to trade (in this case, buy).