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TFC Commodity Trading Forum

Re: CORN, Time to go Long?/Gian *LINK*

I spent quite a bit of time on the 4sma, 9sma,18sma moving average combination for trading that R.C. Allen came up with decades ago and never found them to be very helpful. The 4sma whipsaws through most everything including the 9sma all the time. I did come up with some value for the 4EMA and that was in an uptrend as long as price closed above teh 4ema the uptrend was intact. One could exit on the 1st close but only two closes below the 4ema ended the short term rally. And then one could expect a pullback to the 20ema. And in a downtrend as long as price closed below the falling 4ema you stayed short or at least did not buy regardless of perceived value until price had two closes above the 4ema. That would strongly suggest the short term sell off had ended and a rally back to the 20ema was likely. That was the only value I ever found with the 4ema. Here is a link to a study done on R.C. Allen's 4-9-18sma moving average cross over trading system. This study showed the best moving averages used for crossover signals was the 10sma-20sma. And a close 2nd was 5sma-20sma. The original 4-9-18sma was down the list. But I agree with Alexander Elder who writes a lot of books. He always uses EMA moving averages due to the slow movement of simple moving averages. Notice all MACD indicators are based on EMA moving averages not SMA for this reason. John Murphy always uses EMA moving averages for cross over signals as well. His preference is a 5ema/20ema cross over system. He stated that right up into the 1980s everyone used sma moving averages until computers made the ema moving averages easily available. Use what works for you but thought I'd give you my thoughts on this regarding my own research. The slowness and untimely crossovers are very obvious if you put a 50ema and 50sma on a chart to see the problem clearly. You'll see both track together most of the time. But at price changes from down to up or up to down the sma will just keep right on going in the same old direction for often weeks while the ema moving average will change quickly to the new trend. Look at a bunch of charts with both to see if you're interested. Here is the link to the stucy that reviewed R.C.Allen's 4-9-18sma trading system.