What is the universal moving average?

Is there a moving average with a certain parameter that can be placed in any market situation and make a fortune, as if finding the profit code in trading, and making endless profits?

In fact, in our view as seasoned traders, this idea is quite bizarre. However, when I first started trading many years ago, I also had such an obsession, which was to find the Holy Grail in trading, to be invincible in trading. It was not only the universal moving average, but I was also looking for the universal MACD, the universal Bollinger Bands, or any other indicators that might be possible, as long as they could lead me to profit.

But after I studied dozens of indicators and tried various combinations of indicators, I found that no matter what I did, the indicators would still have their moments of decline, there would still be markets they were not suitable for, and there would be times of loss. When you have been switching back and forth for several years and find that your research still fails, the feeling of pain is really indescribable.

Later, the reason I was able to get out of the loss was precisely because I gave up this obsession, gave up looking for the universal indicator. Later, I tried to use simple indicators to form a trading system, tested a little bit, adjusted a little bit, and after a long period of time, I finally found my "profit comfort zone", which is to earn the maximum profit probability within the risk limit I can bear, no longer pursuing only profit and no loss, but pursuing big profits and small losses.

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Back to the main topic, why is there no universal moving average?

This has to start with the origin of the moving average. The moving average is short for the price average line, and the difference between moving averages lies in the parameters.

For example, the 10-day moving average is the average closing price of the most recent 10 k-lines, the 30-day moving average is the average closing price of the most recent 30 k-lines, and the 60-day moving average is the average closing price of the most recent 60 k-lines.

The 10-day moving average is calculated using the most recent 10 k-lines, so the 10-day moving average is very close to the market, the 30-day moving average is slightly farther from the market, and the 60-day moving average is even farther.

Therefore, moving averages with smaller parameters are closer to the market, more sensitive to market changes, and turn faster. The larger the moving average parameter, the more sluggish the response to the market, and the slower the change in direction.Here are the 10-day moving average, the 30-day moving average, and the 60-day moving average. It is evident that the black 10-day moving average is the one that closely follows the price action, and it is also the most sensitive. The red 30-day moving average changes more slowly, and the 60-day moving average is the slowest to change.

Let's discuss the trend of the market.

The market trend can sometimes move quickly, sometimes slowly, sometimes it's a one-sided rise, and sometimes it's a fluctuating rise. Here comes the question: a fast trend aligns with a smaller parameter moving average, while a slow trend aligns with a larger moving average.

On the left is a market with rapid declines and rises; both trends fit well with the 10-day moving average. Using the 10-day moving average, one can capitalize on this trend and make a profit. On the right is a slow-rising market trend, which fits well with the 60-day moving average. Only by using the 60-day moving average can one make a profit.

Therefore, if you want to trade in a fast market, you need to use a moving average with a smaller parameter. If you want to trade in a slow market, you need to use a moving average with a larger parameter. Correspondingly, a moving average with a smaller parameter will fail in a slow market, and a moving average with a larger parameter will fail in a fast market. This is why there is no universal moving average.

If there is no universal moving average, how should we trade?

It's simple: just choose one moving average and trade in one type of market condition.

Each moving average corresponds to a specific market condition. We can select the market condition we want to trade based on the characteristics of this moving average. Don't be greedy; just earn the profits from this part of the market condition.For instance, if you have a more impatient personality, you would use a moving average with a smaller parameter to trade in fast markets. If you are more patient, you would choose a moving average with a larger parameter to trade in slow markets. Then, based on the different moving averages, adjust the corresponding trading frequency, holding period, and profit-loss ratio, success rate, and so on. Find a relatively balanced position according to your personality traits and schedule to form a trading system for trading.

We seize the market trends that fit our trading system, and we let go of those that do not. The word "greed" is the biggest original sin of financial market losses. When one lets go of greed and the unwillingness to accept defeat, the path of trading becomes smoother.