Moving averages trading rules are simple and powerful.
In this article we explore some ways to make the rules less sensitive in an attempt to reduce whipsaws.
1) Traders can wait for the breaking of moving average lines by several closes for confirmation. This would make momentary crossings a little less likely to register.
2) Traders can delay taking action on a signal for a number of periods and wait to see if the price re cross the moving average line. If that happens, a false breakout just occured.
3) Traders can widen the moving average line by imposing a upper and lower band around the moving average line. Only when the band is crossed do traders enter a buy or sell signal. This allows for minor fluctuations within the band and possible several crossovers of the moving averages of closes without traders having to spring into action everytime.
4) Traders can determine a band by using averages of the period highs and lows.
5) With wide bands, there is potential to use the upper and lower bands as counter trend points and not momentum signals.