Displaced Moving Average

The Displaced Moving Average determines the trend’s direction with the help of MAs. In this guide, we’ll mention the indicator and how you can trade it.

What is the Displaced Moving Average?

The Displaced Moving Average is an upgraded version of the traditional moving average. The DMA is calculated by taking a moving average of the price data and then shifting the result forward or backward in time by a certain number of periods.

For example, a 10-period DMA with a displacement of 5 would take the average of the last 10 periods of price data and then shift the result forward 5 periods.

The Displaced Moving Average typically uses only one moving average. However, the MT4 and MT5 versions come with three MAs.

Displaced Moving Average
Displaced Moving Average

Displaced Moving Average Strategy

As the DMA MT4/MT5 version uses three MAs, you must look for the MAs crossovers.


The strategy involves using a short-term MA, a medium-term MA, and a long-term MA. When the short-term MA crosses above the medium-term MA, it generates a buy signal. Conversely, when the short-term MA crosses below the medium-term MA, it generates a sell signal.

You can use the long-term MA as a filter to further confirm the trend. When the long-term MA is also trending in the same direction as the short-term and medium-term MAs, it confirms that the trend is valid.

Additionally, you can use other technical indicators and analysis tools in conjunction with the DMA to further confirm the signals.

The DMA can be applied on all timeframes. However, using the indicator on longer timeframes is better to lessen false signals.

Buy Signal

  • The short-term MA must cross above the medium one.
  • The long-term MA should be trending upwards.
  • Wait for the price to go upwards and then enter the trade.
  • Set a stop-loss at the recent low.
  • Set take-profit at a recent high, or exit the trade when the short-term MA goes below the medium one.
Displaced Moving Average buy signals
Displaced Moving Average buy signals

Sell Signal

  • The short-term MA must cross below the medium one.
  • The long-term MA should be trending downwards.
  • Wait for the price to go downwards and then enter the trade.
  • Set a stop-loss at the recent high.
  • Set take-profit at the recent low, or exit the trade when the short-term MA goes above the medium one.
Displaced Moving Average sell signals
Displaced Moving Average sell signals

Displaced Moving Average Pros & Cons

Pros

  • The DMA is easy to understand and use.
  • It can provide clear buy and sell signals.
  • It adds multiple MAs for confirmation.
  • The strategy can be customized by adjusting the MA periods.

Cons

  • The moving averages are lagging indicators, meaning they may not provide signals until a trend is established.
  • The indicator can generate false signals in a choppy or sideways market.

Conclusion

The Displace Moving Average is a trend-following indicator and is an upgraded version of the traditional MAs. The MT4/MT5 version of the indicator uses short-term and medium-term MAs for crossover strategy and long-term MA for further signal confirmation.


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