Moving Averages

In addition to chart patterns, many traders and analysts graph the moving averages of past price settlements to smooth out the choppy price patterns. Some analysts overlay a slower moving average (say, a 40 day like the green line above) with a faster one (e.g., a 9 day like the red line above) to signal changes in trend that are harder to discern from a choppy bar chart. I am not suggesting that such an indication is either meaningful or a trend, but if traders act on it as such, it may have some short term influence.

Another approach is looking at a longer term moving average chart like the one below.  When futures prices (in blue) cross the 200 day moving average (in red), that is typically noticed and cited by technical analysts as a meaningful price move.  Such a signal occurred on July 8, when Dec’20 cotton futures settled above its 200-day moving average, setting the stage for “running the stops” and generating more technical buying.  It happened again on August 3.

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