Chapter 11: Moving Averages
What we will cover in this chapter
- Moving averages can be defined as “trend-smoothing devices that lag by definition”.
- A 200-day moving average is best thought of as a trend mean.
- The closest thing we have to a natural law of physics in the markets is that when prices diverge from the mean they will eventually revert back to it.
- The moving average also offers a crude indication of trend direction.
DAVID FULLER HAS often described mean reversion as “the closest thing we get to a natural law of physics in the social science of investor sentiment”. As market sentiment ebbs and flows within a trend, we invariably see prices become divorced from a mean before eventually reverting back towards it. This often ...