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Chapter 11, Part V. Using Moving Averages. Displaced MA. Page 5

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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    Pipruit: And does it always occur like that?​

    Commander in Pips:
    Of course not – even a DMA could fail in a whipsaw and some significant fake outs. But in general, it gives better results than an SMA. It is needless to say that before applying any DMA you will have to estimate the optimal period for it on a particular market. If you will use random numbers for periods without any relying on some investigation of particular market or Forex pair – you are doomed – even a DMA will help you. Application of any tool on the real market demands detailed analysis for suitability of possible tunings of this tool to the particular market. As a result, it is very probable that you will come to using of different numbers for different pairs and markets. For instance it could turn out that after some analysis you will use a 7x5 DMA for EUR/USD and a 10x3 for GBP/USD. Furthermore, I’m sure that you will use different periods for different time frames…

    Pipruit: Thanks, I’ll remember that. And can we displace an EMA or other types of MA, or displacing is only for SMA?​

    Commander in Pips: You can displace any of the types of MA. Displacing does not change the nature of an MA. It is just additional parameter in the tweaking procedure – that’s all.

    Pipruit: Great, something else?​

    Commander in Pips:
    Yes, there is another very useful property, that DMA has and SMA does not. Look at the next chart:


    Chart #7 EUR/USD daily, 7-period (green) and 7x5-period (red) DMA
    [​IMG]

    We already know that we can’t estimate the value of an SMA by close prices for current period (in our case this is a day), because it has not closed yet, and hence, its close price does not take part in the calculation of an SMA. Now imagine that you trade with an SMA. This fact leads you to a huge problem – you do not know when the trend will change during the day! But with using a DMA – you do not have this disadvantage. Since the DMA displaced forward – it already has a value for the current day and even for tomorrow. So, if you use DMA – then you know the price at which trend will shift in advance – even before the trading day starts!

    Pipruit: Huh Commander, you do right, really. Why I didn’t think about earlier… Indeed, using an SMA we do not know its value for today’s trading day, so we do not know when the trend will shift…​
     
    #1 Sive Morten, Dec 18, 2013
    Lasted edited by : Mar 12, 2016
    Hamza Samiullah and fran alvarez like this.
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