Multiple Simple Moving Average

Some techniques of trend determination involve more than one Moving Average at a time. Multiple simple moving average also known as moving average ribbon.

Some techniques of trend determination involve more than one Moving Average at a time. Signals are given by a shorter-term Moving Average crossing above or below a longer one. This procedure has the advantage of smoothing the data twice, which reduces the possibility of a whipsaw, yet it warns of trend changes fairly quickly after they have taken place.

Two averages that have been found reliable in determining primary market moves are the 10- and 30-week Moving Averages, when used together. For the purpose of simplifying the cal­culation, the weekly closing price is used, rather than a 5-day average.

Signals are given when the 10-week average moves below the 30-week average and when the 30-week average itself is declining. This development warns that the major trend is down. It is not assumed to have reversed until both averages are rising simultaneously, with the 10-week higher than the 30-week Moving Average. A valid signal is not given if the 10-week average rises above the 30-week average while the longer average is still declining (and vice versa for bull markets). By definition, these warning signals always occur after the ultimate peak or trough of stock prices and serve as confirmation of a change in trend rather than as actual juncture points in themselves.

Moving Averages should always be used in conjunction with other technical indicators. This is because prices occasionally fluctuate in a broad sideways pattern for an extended period of time, resulting in a series of misleading signals. Usually, such frustrating trading-range action is followed by an extremely strong trend in which the losses incurred from the trendless period of whipsaw signals are more than made up for.

Whenever it is obvious that an Moving Average has entered a trading range, and this might take two or three whipsaws, it is best to ignore it and concentrate on trendlines joining peaks and troughs of the range, using their breakouts as a basis for buying or selling.