Yes professionals use moving averages and technical indicators, but probably not in the way you think.
Rather that talk about it let me show you some examples of trade setups from professionals I know.
Let me show you an old “system” used by trend following hedge funds (This is one I built for research based on Andreas Clenow’s excellent book). It is probably not “state of the art” anymore, but certainly variants of it are still in use by the 300 billion CTA industry, and I personally have quite a lot of money in a firm doing something really very similar. This system would have pulled around 17% pa compounding over the last 15 years.
In this model, the short entries are marked with “SE” and the exits are marked with “SX”. The model looks for short entries only when the green moving average (100EMA) is above the red moving average (50EMA). The model uses two long term moving averages as an approximation for “trending” and only seeks to go short when long timeframe trending price action is in play. It goes short on a close below a 50 day low, with a stop 3 x ATR (100) away (represented by the red dots while in a trade).
You can see this model does an excellent job of capturing large moves when they occur, which of course does not happen very often, so you must trade many uncorrelated markets to get some trending behaviour. Because of the nature of trends (they go further than anyone would expect) the outlier wins out earn the many small losses.
Let’s look at another legit professional trader, Gabriel Grammatidis, who is one of Van Tharp’s instructors, and a very good trader.
His system is built on the idea that higher timeframe traders trading in line with the larger trend will overwhelm the short term traders trying to reverse the trend. He uses four moving averages in “alignment” as a proxy for “trending behaviour”. He is looking for trending behaviour on the 240m and daily timeframe to overwhelm bearish price action on the 5 min chart and bases his entry around that. I traded a variant of his systems for one year and did 80% for the year over 360 trades for the year.
The lesson is that simple measures of trending behaviour (like one moving average above another one) do nearly as well as complicated measures of trending behaviour. I’ve tried all manner of complicated things to objectively identify trending price action, and all of them failed in the real world.
I use a similar mechanism in my current systems as “shorthand for trending” and and convinced that most times, simple beats complicated.
Moving averages have zero predictive value. How could they? Traders are using many many different averages, why would one be any better than any other?
(This post is part of a series compilation of discussions held in Quora back in the day.)