Email of the day on the trend mean:
Comment of the Day

July 23 2019

Commentary by Eoin Treacy

Email of the day on the trend mean:

Is 'trend mean' one static measurement tool like 200-day moving average or does it depend on the chart? I often see you use a 200-week moving average when referencing trend mean but often times it is another time frame. Can you clarify?

And

You have been spot on, on the direction of gold bullion. Well done. Have been enjoying the service.

Just one question, if you will: What is the rationale behind the ‘’trend mean’’ which you use on your weekly charts?

Eoin Treacy's view

There have been a couple of questions relating to the use of a trend mean over the last week so I thought I had better clear up any misunderstanding. We use the 200-day MA as a trend mean because it is a handy average of the prevailing price over the last year.

Rather than think of the trend mean as offering a sacrosanct level of support and resistance we use it more as a way of eyeballing just how overextended a market is. It is reasonable to expect that even in a consistently trending environment there will be occasions when prices have risen a bit quicker than usual. That increases potential for a reversion back towards the mean.

Markets tend to overshoot in both directions so it is quite normal for prices to bob around the trend mean as they find support. That is why we talk about the price find support or encountering resistance in the region of the trend mean.

In the Chart Library we only use days in calculation so a 40-week average in some services will always be a 200-day MA in our service.

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