Re: 20dEMA (was: [CANSLIM] MGAM)

From: "Patrick Wahl" <pjwahl@attbi.com>
Subject: Re: 20dEMA (was: [CANSLIM] MGAM)
Date: Mon, 4 Feb 2002 12:06:53 -0700

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Ok, the long and slightly disjointed version goes like this -

I picked up on it in a book on swing trading called "Street Smarts" by Linda Raschke 
and Larry Connors.  They use it as support/resistance on strongly trending stocks, 
either direction.  They combine that with the ADX for identifying which stocks or 
futures are in a strong trend, then wait for a pullback to the 20 day EMA.  (if you 
look at the nasdaq futures today on a 5 minute chart, you can see they tracked the 
20 period ema for about 20 minutes starting around 12:30 before selling off again)  I 
think that the 20 day EMA is a level that a lot of traders watch, I don't suppose there 
is anything magical about a 20 period EMA, I think perhaps like the 50 day MA in 
stocks, it is a closely watched  indicator and there is a bit of a self-fulfilling tendency 
there.  I suppose in some sense it is a way of giving the market a little bit of 
structure, always watching an average of a certain length, always dealing with price 
in a consistent manner, if that makes any sense.

In general I am not that big on indicators.  They are all price based, they are all 
closely correlated since derived from the same numbers, they really don't show you 
anything that is not already reflected in the price itself.  They do provide a bit of 
smoothing to what the underlying price is doing, and they will show divergences 
more clearly at times, but I think new traders can get a bit indicator happy and make 
more of them than is really there. 

Somewhere on Linda Rashcke's site she says roughly the same thing, says she 
pretty much sticks to the 20 period EMA, ADX, and a 3-10 oscillator.  Pick a few 
indicators and learn how to use them, don't worry about the 100 indictors that come 
with a charting package.  (I know this is getting a bit far removed from the original 
question and CANSLIM too, I just like an excuse to rant about this subject)

If you have any further questions, let me know, I can reply privately so we don't get 
too off topic on the list....

On 4 Feb 2002 at 12:22, Katherine Malm wrote:

> Patrick,
> 
> Could you talk more about how and why you use the 20dEMA?
> 
> Thanks,
> Katherine
>   ----- Original Message ----- 
>   From: Patrick Wahl 
>   To: canslim@lists.xmission.com 
>   Sent: Monday, February 04, 2002 12:18 PM
>   Subject: Re: [CANSLIM] MGAM
> 
> 
>   One further comment - look at DFXI for what might happen(who knows what will 
>   happen with these things) with MGAM.  After DFXI gapped up to 36, it traded 
>   sideways to down for the next few days, finding support at a 20 day EMA,  about at 
>   the pivot point, bouncing back up from there, although only briefly.
> 
> 

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