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Displaced Moving Average (DMA) – Technical Analysis Indicator

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Displaced Moving Average Definition

The displaced moving average (dma) is created by shifting the moving averages forward or backwards in time by a specific time interval. The displaced moving average is used for two primary reasons:

  1. Shift the moving average backwards to contain the trend bettter, in order to stay in long-term positions
  2. Shift moving average forward in order to become a leading indicator, to get out of positions once counter rallies develop

DMA Inputs

The displaced moving average has two inputs. The first input is the actual moving average period (ex. 5,10,20) and then the displaced value, which can be entered as a positive or negative number. If the displaced value is a positive, the displaced moving average is moved ahead of the price. Conversely, a negative value makes the displaced moving average a lagging indicator, where the moving average is behind the price.

Displaced Moving Average Chart Examples

Below are two chart examples of Coca-Cola from the same time period with a 20 Period DMA. In the first chart, there is a 20-period moving average with a +3 DMA value. Notice how in the first chart, the stock breaks the moving average a number of times as the DMA is leading the price.

Displaced Moving Average

The next chart has a 20-period moving average with a -3 DMA value. Since the DMA is negative, it lags the price. Notice how the DMA contains the price better as the stock trends higher.

DMA Negative

 

Alton Hill

Alton Hill

I am a co-founder of Tradingsim.com and an IT professional that specializes in large scale Systems Integration projects. I have actively traded the markets since 2000 and believe that true trading mastery comes from practice. When I'm not working on a new trading strategy, I enjoy spending time with my wife and kids.
Alton Hill
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