There is no meaning to moving averages — Column currently published on Toyo Keizai ONLINE

Good morning, this is Matsushita.

Today I deliberately chose a slightly shocking

title.

Recently, from a reader

I received the question,

"Is trading using moving averages correct?"

What do you think?

There is no single correct answer to this question.

If you go a step further in instruction,

the way you approach the questions is wrong.

Regarding whether trading using moving averages is correct,

there is no particular answer,

what is the purpose and how you use moving averages?

That is the correct question.

Moving averages are technical indicators used to identify

the trend, so for investors who adopt a trend-following strategy

aligned with the direction of the trend,

it is correct to align the trend direction revealed by moving averages

with the direction of trading.

This trading has high edge and will lead to profits.

However, when you look at the question above again,

there is no perspective of

“for what purpose and how to use moving averages?”

and it simply says

“Is trading using moving averages correct?”

With this, you cannot find the correct answer

and you can never effectively use moving averages.

Profits will not increase either.

Next, moving averages are merely indicators to identify the direction of the trend, so their scale depends on

the settings called variables, such as “how many days’ average to look at.”

and varies according to that.

For someone who conducts long-term investing and intends to hold for years to grow profits

looking at 5-day, 10-day, or 20-day

moving averages is meaningless.

In this way, for investors aiming for multi-year long-term holding,

the moving averages to refer to are

the 200-day moving average, and the weekly and monthly

moving averages.

Here, too,

the question “Is trading using the 25-day moving average correct?”

is meaningless.

In investing, there is no inherent truth to whether a certain indicator, method, or theory is correct,

and what matters is the alignment between the objective and the tool (indicator, method, theory, etc.)

you choose to use to achieve that objective.

Understand this more deeply as soon as possible and

move closer to investment profits.

It is not about whether moving averages are correct.