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Chapter 11, Part V. Using Moving Averages. Displaced MA. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 18, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Commander in Pips: Look at chart #3. I added a 17-period SMA (blue line). Here you can see that during the fake out – 12-period SMA (green line) was clearly below 17-period SMA. Hence the trend was stably bearish, and you have not made any trades there although price has penetrated as 12-period as well as the 17-period MA.

    Chart #3 EUR/USD 30-min, 12-period (green) and 17-period (blue) SMA
    [​IMG]

    Pipruit: Looks like it is very useful tool. I should remember that.​

    Commander in Pips: I think so. As always, you may combine this method with trend lines and others tools to clearly see if you should you buy or sell. Also, it may be you will find useful to apply not two but three MAs. If they will stand in order – fastest above slowest in uptrend or fastest below slowest in downtrend, you will understand if the pair is in an uptrend or downtrend.

    Displaced Moving Averages - special case

    Commander in Pips: Here I want to share with you with a very useful tool. It is called a Displaced Moving Average. But first – take a look at chart # 4:

    Chart #4 GBP/USD weekly and some SMA
    [​IMG]

    Tell me, what do you see here?

    Pipruit: Well, I see some MA (green) that in general holds trend nicely, but still was penetrated by 4 fake outs. And some other MA (red) that was not. Possibly the red MA has longer period then green MA. Looks like applying red one could lead to better results…​

    Commander in Pips: And what will you answer if I say that both MAs have the same period…

    Pipruit: And how it could be possible?​

    Commander in Pips: Yes, both MA are 7-period MA, but red one was displaced forward for 5 periods:


    Chart #5 GBP/USD weekly, 7-period SMA (green) and 7x5-period (red) DMA
    [​IMG]

    You can see, that although both of the MAs have the same period – “7”, the Displaced SMA (DMA) does a much better job holding up against occasional splashes (fake outs) on the weekly chart. Due to this property, by using a DMA you can stay in a “sell” position without interruption, while using 7-period SMA without displacement – you have had to reestablish shorts at least 3 times due to fake outs.

    Pipruit: Cool! And what is displacement, how to apply it via software?​

    Commander in Pips: Usually, if software allows you to make displacement of MA, there should be some field for entering the number of periods that you would like to displace the MA in tweaking procedure of MA drawing. This field could have different names – “Offset”, “Shift”, “Displacement” – are most common to see.

    - If you want to shift (displace) MA forward – you should enter a positive number. In our example we’ve shifted 7-period SMA for 5 period forward;

    - If you want to shift (displace) MA backward – you should enter a negative number.
     
    #1 Sive Morten, Dec 18, 2013
    Lasted edited by : Mar 12, 2016
    Hamza Samiullah and fran alvarez like this.
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