I have often found that systematic trading models are more of an input than an output for me and my process. That said, I’m not a fan of completely outsourcing investment decisions to a model-based approach.
However, I see the value of a systematic model as the basis for a discretionary process based on technical analysis.
The obvious question is: how do you build a simple mechanical model to keep track of market movements?
Years ago, I looked at moving averages and quickly found that exponential moving averages provide a much clearer representation of price trends. But how do exponential moving averages differ from simple or “normal” moving averages?
In today’s video, we introduce the concept of exponential moving averages and go over a market trend model using these averages on the S&P 500 chart. Here are some questions we will discuss in the video:
– How are exponential moving averages calculated and why do they provide a better trend indicator?
– Why do people use simple moving averages so often and still should I pay close attention to them?
– What does the market trend model say about the current market environment in terms of risk-on vs. risk-off?
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A chart: market trend model and moving averages
S&P 500 Index Exponential Moving Averages Chart
At the time of publication, the author may hold positions in the securities mentioned. All opinions expressed here are solely those of the author and in no way represent the views or opinions of any other person or entity.