Video blog: That trend indicator… is it helping or hurting?

It can difficult to dig into someone else’s work and research. I wrote a post a few years ago about why using the slope of a moving average, moving average crosses, or trend indicators based on multiple moving averages might be a very bad idea. (Answer: because it puts you on the wrong side of the market!) Even knowing this, our eye will often see something different on the chart, so we have to actually crunch some numbers.

Today, I did a short video blog digging into this somewhat difficult concept. I encourage you to think about the issues I raise, and be open to some ideas that might challenge some of your beliefs. I’m not saying this is the only way to think about the problem, but here’s why I don’t use trend indicators to filter my trades. (A point I didn’t make strongly enough in the video is that this is just one year, but we see similar stats across other years, with some slight differences between asset classes. See the longer post for more details.)


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

This Post Has One Comment

  1. John

    A nice analysis showing why a naive application of mas is rarely rewarding. Reassuring for a discretionary trader.

    I wonder if the right question was asked though; the right measurement was chosen. The reason I wonder is that a huge part of my trading is the decision on which direction the flow is currently going. Although I get a faster response than those mas by combining trend lines and interactions with prior S&R zones to determine the trendy and the troubled periods, I am still looking at a similar blue vs red area.

    So why was the return question the wrong one? For me it’s wrong because I’ve already accepted that I will not be the trader taking money from those fast markets that are climbing while red or dropping fast while blue. I’m not that guy (any more than I’m imbued with natural patience). I’m the guy who repeatedly takes chunks long from the blue and chunks short from the red. So for me the question is more like “when are the movements in my direction likely to be longer than the opposite movements, when are the selected stop areas not likely to be taken out, when is there going to be moderate predictability for my method, etc”

    So, if a method of reading the bigger picture lets me select trades that have a high frequency, and a good expectancy then that’s the area I’m happy to trade. Someone else can play in the exciting zone.

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