Archive for June 11th, 2012

The MA Crossover

 

If you are investor, it makes more sense to simplify a market indicator, which suggests to buy, hold or close. Today we discuss another simple yet powerful indicator. It is the Moving Average (MA) crossover. MA is an average of previous prices. The indicator is used to emphasize the direction of a trend and to smooth out price noise. MAs are perhaps the most widely used technical indicators. Moving Average crossover uses longer moving averages to filter the signals of a shorter moving average. This reduces the number of entry and exit signals and makes it easy to interpret a trend.

Conventionally an MA crossover is used with price. It suggests a buy when the daily price close crosses above the moving average and sell when the daily price crosses below the moving average. However MA crossovers can be used in various ways. Below we have discussed three moving average crossover of 14(grey), 21(purple) and 35 (green) periods. An investor can choose his three different periods also. If all the three moving averages are pointing higher i.e. 14 period is above the 21 period and 21 period is above the 35 periods, the price trend is assumed to be positive and vice versa. Though prices play an important dynamics with the MA, today we have just analyzed the MA crossovers without the price.

Here we have illustrated the gold MA crossover, which is in a clear negative zone. The 14 period grey MA has pushed below 21 period purple MA, which has in turn pushed below the green 35 period MA. This is a clear negative trend on Gold. On the Sensex, the MA crossover is partially negative. While on INR the MA crossover is clearly up trended. Even Global indices are mixed and S&P 500 is still in MA crossover positive mode.

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Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.

Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.

 

Dr. Ionut Nistor is the co-author of Performance Cycles paper published in Kyoto Economics Journal in March 2009. Ionut is a professor of Corporate Finance at Babes -Bolyai University and a post doctorate fellow at the Kobe University in Japan. He is fluent in Japanese, Romanian and English.
The Bric Model from a Japanese Perspective
Ionut Nistor - Econohistory