A Pivot Points Moving Average System
The simple moving averages (SMA) like the 20 period or the 100 period that takes the simple average of the closing prices in the last 20 periods or 100 periods are the most popular. Now, the problem with the MA is that it is a lagging indicator. What this means is that it gives a signal after the trend starts or ends.
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If you want to make money with MAs than use a different set of values as compared to those being used by the majority of the traders. If the traders are using the 20, 50, 100 or 200 period MAs than don’t use them in your trading system. One way it to use the pivot point moving averages.
Pivot points are calculated by dividing the high (H), low(L) and the close(C) by three. PP=H+L+C/3. Now, pivot point price is a more accurate picture of the true average price of a period rather than the closing price that is used in calculating the moving averages.
Now when the market changes direction from an uptrend to a downtrend, the price action will tend to bounce off the three period pivot point MA as a support and then when the downtrend develops, it will bounce as a resistance.
Whatever, a pivot point moving average uses more than the closing price of a period rather it uses the true average that incorporates the range of the period and can give you a better picture than the simple moving average.
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