Many investors believe that buying opportunities are created when one moving average crosses over another with a different time period. Some investors also believe that the trend of a financial instrument can be determined by whether prices are above or below a longer time period moving average, such as a 200 bar average. Investigator lets you test these theories. Investigator also allows you to combine moving average testing conditions with bar patterns and other indicator testing conditions.
There are three dialog boxes associated with testing moving averages. The first will ask you to select the time period for the averages and will ask you to enter the number of averages you want to use for testing. By entering the number of averages and clicking OK you will progress to the Moving Averages - Step 1 dialog box.
This dialog box will appear for each average that you want to define. For example, if you entered 2 in the previous dialog box (the one that asked you for the number of averages you want to use for testing), this dialog box will appear two times. The dialog box will ask you to enter the number of bars for the current average you are defining, as well as whether you want the average to be over the bar’s open, high, low, or close. You also need to specify if you want the average to be a simple, weighted, or exponential average. If you choose the exponential average option, you will also have to specify the value you want to use. If you are defining more than one average, the list of the previous averages that you have defined will appear on the right hand side of the dialog box.
After you have defined all of your averages, the Moving Averages Conditions dialog box appears. This is an Add Conditions dialog box.
At the top of the dialog box, enter the number of bars ago value that you want to use for testing. Under the number of bars ago edit box appears a list of the moving averages that you have defined. Each average has a number associated with it that is used when you are defining testing conditions for the averages. For example, the first average on the list is defined as MA 1. There are two options that you can use for testing moving averages.
The first option tests whether one moving average is greater than another. When you use this option, enter the number of the moving average that appears on the list, not the number of bars for the average. First, make sure the radio button is selected for this option. (In other words, make sure the correct dot before the words Mov Avg: is selected. It is easy to forget and have the other testing option selected.) Next, enter the number of the moving average you want in the first edit box, select whether you want this average to be greater or less than the number of the average that you enter in the next Mov Avg: edit box, and enter the number of the second average in the second Mov Avg: edit box. If you want, you can check the Just Crossed? parameter. When you click the Add Condition button, the condition is appears on the condition list on the right.
The other option you can choose is to see if a moving average is greater than or less than a bar’s open, high, low, or close. First, make sure the radio button is selected for this option. Next, enter the number of the moving average that you want to check for, select the greater than or less than option, and then select whether you want to test the open, high, low, or close. If you want, you can check the Just Crossed? parameter. When you click the Add Condition button, the condition is appears on the condition list on the right.
You can continue adding as many conditions as you like. When you are finished click OK.
Note: When you are viewing your historical trades using TradeWindow or some other method, if you are testing more averages than you have defined as defaults, the extra averages will appear in red. For example, let’s say you have two default moving averages defined - the first one defaults as the color green and the second one defaults as the color blue. If you are testing four averages, the first one will appear in green, the second one will appear in blue, and the third and fourth ones will appear in red.
Note 2: If you are testing the open of a particular bar for a moving average and the open is not available, the close of the bar will be used.