Displacing the Moving Average

To forecast trends, the usual moving average is displaced either forward or backward in the chart. We call this "Displaced moving average” as we take the moving average and shift it by a number of intervals. It is generally used in trading strategies to improve the usual moving averages.

Displacing the Moving Average

Let’s see the comparison of the Regular Moving Average with the Displaced Moving Average:

Displacing the Moving Average

Let’s discuss the graphical illustration below:

A 14 - day SMA (Blue line) is placed on the daily chart of Silver.

A 14 - period SMA is added (displaced by 9 periods to the right -Green).

Note: [These settings were adapted from DMA channel strategy]

The standard candlestick charts are replaced with line charts to highlight price crossovers.

We can infer that; the price crosses the regular moving average before crossing the displaced moving average.

What Are The Effects Of Using A Displaced Moving Average?

  • Less crossover signals

  • More reliable signals, filtering out small trends.

  • More lag in signals

  • We need to understand the impact of shifting moving averages before applying them to our trading strategies.

  • The difference between a fast-moving average (shorter setting) and a slow-moving average (more extended period setting)

  • Displacing moving averages in the right gives more lag, and the left helps cycle analysis.

 

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