I have been learning about moving averages (an average of prices that rolls over time) during the last weekend. Basically I learnt four fundamental points:
1) When the market price crosses above the moving average, I could enter into a buy position. Conversely, when the market moves below the moving average, I could sell the contract. The more cautious and risk averse traders would prefer to see the moving average line change position before any action is taken.
2) The sensitivity of the moving average line is directly proportional to the duration of time chosen for the average. The shorter the length of time for the average, the more sensitive (more buy and sell signals) the moving average is.
3) The moving average cross over strategy says if a moving average line of a longer length of time (for example, 20 day moving average) crosses below a moving average of a shorter length of time (for example, 5 day moving average), the signal is to buy. If the longer length of time average crosses above the shorter length of time average, the signal is to sell.
4) A moving average is not so useful when the market does not have a trend. For example, before the market turn downwards last week, the corn market was trading sideways and the changes were trivial. That was the time when moving averages became meaningless.
I would like to say that to learn technical analysis, I found that it is better to watch videos on youtube than going through reviews because it would be so much easier to concentrate.
For the coming week, I am going to go long on soybeans because prices have been at the bottom pit. However, moving averages may not be useful here because prices are quite volatile now due to the unknown yields for the South American crop. I hope that their yield would turn out to be low so that prices for US soybeans will go up. Furthermore, another reason why I am going long is that China has been importing US soybean despite the negative crush margins. China imported almost 400,000 tonnes out of the 543,600 tonnes of soybean US exported.