I was wondering if anybody had come across some resources or books explaining the significance of the different and more popular moving average periods? For example what is the significance of 20 days when we are using the 20 day moving average why not 22 days why not 30? Or another example would be why the 200. Moving average, why not 220. I figured there must be some science behind this and I wanted to delve into it a lot more. Any help on this would be very much appreciated. Thanks
I don't think there's any science behind it, trading isn't a science after all. Its just customary practice. Once a MA period becomes well known through a respected writer, it makes sense to use the same MA period: new writers are taken seriously that way. If a new writer deviates their period a little, they're probably going to face awkward questions, like using 201 or 199 instead of 200 - that's just going to look perverse.
I think same reason why there are common Fib levels that people follow. Enough people think enough people are stupid enough to believe that the Fib ratio has some special universal "golden rule" significance and they start trading around it.
Donchian used 5 and 20 days. http://www.chrisperruna.com/2007/09/24/donchians-5-and-20-day-moving-averages/
Three thoughts come to mind. One being is to use a same period and establish when it moves you train yourself what degree of trend price action is doing corresponding to the moving average, is price moving away from M.A. or coming down from highs to the M.A for retracement or reversal. The Second is how fast does one want to make it for less lag, but usually faster the M.A. more signals you might get and not always more profitable trades. Third is after you have developed what the normal relationship of price action and M.A. should be, and it differs, study what happens because it is abnormal. Moving averages that show easy going direction is one of price action of trending, whereas one is at a steep angle is often blowoff highs/lows.
Implying most technicians do any research. Moving averages act as noise filters for a signal. You choose the period that gives you the best SNR.
Run a simple backtest,optimise the shit out of it,and when you think you have found the holy grail,run a walk forward analysis... Thats all the help you need
The calculation is not so important as the utility. MA's are price derivatives which can help a trader see at-a-glance the nature of price development and momentum characteristics. Some use derivatives and some don't. Whether they can be useful to you will require work, experimentation and testing. I use MA's and a momentum oscillator and could care less if anyone else considers them useful. You have to discover what can work for you and the answer will come from effort and not the opinions of anonymous forum dopes.