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4. Smoothed Moving Average (SMA). A smoothed moving average is a weighted moving average of a different type. In this case, the data is "smoothed" mathematically to keep the averages from moving around too much. This, it is hoped, will yield more stable signals. 5. Triangular Moving Average [TMA).

Yet another type of moving average, the TMA is weighted to emphasize the normal statistical distribution. In other words, the extremes of the TMA are less heavily weighted than is the central portion of the TMA. This results in the TMA being more centered and, therefore, more responsive to the normal distribution qualities of the data series. In order to calculate a 7-day TMA, for example, the following procedure would be used.

Traditional Moving Average Systems: Assets and Liabilities Moving averages have been used with varying degrees of success by stock and futures traders for many years. Although there are literally hundreds of possible variations on the theme of moving averages, the fact is that moving-average-based trading systems, regardless of their specific type, have some distinct limitations and only a few advantages.

Moving-average systems are trend-following systems. They get traders on board once a move has started based on the averages, and they either exit positions (i.e., "go flat") when a move has ended or reversed.

MAS perform well when markets are in trends. However, in trendless or sideways markets, moving averages experience their greatest limitations and downfall. Since markets are in strong trends perhaps only 30 percent of the time, you'll find that most moving-average-based systems are accurate (i.e., correct) between 20 and 50 percent of the time. This relatively low accuracy rate, however, does not mean that MA-based systems cannot make money.

They can, provided the essential rules of risk management and good trading are carefully followed. Before I discuss these, however, I'll give you some of the pros and cons of MAS. As previously stated, the problem with moving-average-based systems is that they are not very accurate.

Moving averages are lagging indicators. A lagging indicator, as its name suggests, is an indicator which follows the market and which, by its very nature, does not change direction until after the market has changed direction. The positive aspect of such indicators is that they frequently do not change direction until a new trend is under way.

The downside, is, of course, that what the moving-average perceives to be the start of a new trend may actually prove to be a very brief trend or it may be nothing more than a random variation or "hiccough within the existing trend.

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