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DMA (Displaced Moving Average)


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DMA (Displaced Moving Average)

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  #1 (permalink)
 brydubtrade 
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Hi guys

I have recently been looking at 'Displaced Moving Average' and just wondered if any of the traders on futures.io (formerly BMT) have used or are using this in any of their signals?

I have been placing some DMA's on my charts and am currently using different +/- settings to try and see if these can give me any valid signals but im struggling a bit to see whether they give anything different than EMA's in a major way.

I usually just look at PA, volume, channels and support/resistance as a daytrader (mostly) but have read some articles where DMA's are given a good reading and could be good for more position/swing trades but as I say, im struggling to see much difference (in validity of signals) than standard EMA's but am very curious as to whether I can use the DMA as part of my signal toolbox (I like to keep signals/indicators to an absolute minimum where possible).

I appreciate any feedback/comments on this as i've only just very recently started to look at this.

Cheers
Bry

PS: @Mike & futures.io (formerly BMT) forum users, absolute thumbs up to you all, some very knowledgable traders on here, very much appreciate people's willingness to share and always reminds me that there are still good people around :-)

PPS: The DMA definition on Investopedia.com:

Definition of 'Displaced Moving Average'
A moving average that has been adjusted forward or back in time in order to forecast trends. Displaced moving averages are constructed by taking the moving average and shifting it by a number of intervals, either positive or negative. If the number is negative, the displaced moving average will lag the original moving average, and if the number is positive the displaced moving average will lead the original moving average.

Investopedia explains 'Displaced Moving Average'
The aim behind displaced moving averages is to allow traders to center the moving average or make the displaced moving average fit better with the price movement, thereby removing some of the noise in the moving average. Some traders believe that displaced moving averages have more predictive power than basic moving averages such as simple and exponential.

Read more: Displaced Moving Average Definition | Investopedia

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  #3 (permalink)
 Anagami 
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Yes, worked with it a while ago with some success.

Try constructing a DMA channel.

Say,

SMA(25), based on LOW, displaced 5.
SMA(25), based on HIGH, displaced 5.

This channel gives you a very robust way to measure a trend... or lack thereof.

You can come up with many different techniques how to trade it.


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 perryg 
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brydubtrade View Post
Hi guys

I have recently been looking at 'Displaced Moving Average' and just wondered if any of the traders on futures.io (formerly BMT) have used or are using this in any of their signals?

I have been placing some DMA's on my charts and am currently using different +/- settings to try and see if these can give me any valid signals but im struggling a bit to see whether they give anything different than EMA's in a major way.

I usually just look at PA, volume, channels and support/resistance as a daytrader (mostly) but have read some articles where DMA's are given a good reading and could be good for more position/swing trades but as I say, im struggling to see much difference (in validity of signals) than standard EMA's but am very curious as to whether I can use the DMA as part of my signal toolbox (I like to keep signals/indicators to an absolute minimum where possible).

I appreciate any feedback/comments on this as i've only just very recently started to look at this.

Cheers
Bry

PS: @Mike & futures.io (formerly BMT) forum users, absolute thumbs up to you all, some very knowledgable traders on here, very much appreciate people's willingness to share and always reminds me that there are still good people around :-)

PPS: The DMA definition on Investopedia.com:

Definition of 'Displaced Moving Average'
A moving average that has been adjusted forward or back in time in order to forecast trends. Displaced moving averages are constructed by taking the moving average and shifting it by a number of intervals, either positive or negative. If the number is negative, the displaced moving average will lag the original moving average, and if the number is positive the displaced moving average will lead the original moving average.

Investopedia explains 'Displaced Moving Average'
The aim behind displaced moving averages is to allow traders to center the moving average or make the displaced moving average fit better with the price movement, thereby removing some of the noise in the moving average. Some traders believe that displaced moving averages have more predictive power than basic moving averages such as simple and exponential.

Read more: Displaced Moving Average Definition | Investopedia

The idea of displacement will give you a very good reading when used as HALF of the period of the original moving average. e.g. If you use a 50 SMA then by adding another 50 SMA with a PLUS displacement of 25 will give you an execellent reading of the wave of the original 50 SMA. This goes for any moving average. Just add HALF of the original as a displacement. What you are then seeing is the cyclic movement of the moving average.

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  #5 (permalink)
 brydubtrade 
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Hi anagami & perryg

many thanks to both for replying to my thread, it is very much appreciated.

Ok, so it seems there is some validity in using the DMA then. I think where I may have been getting myself slightly confused, is that I wasn't aligning the DMA with a standard EMA or SMA to try and remove some of the noise.

I can now see the possibility of using it for trend trades for which I shall delve deeper but do either of you use DMA for any intraday trades and do you have a preference on what timeframe tends to suit the DMA usage?

I have attached a couple of images from my charts using both the suggestions;




Again many thanks
Bry

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 perryg 
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brydubtrade View Post
Hi anagami & perryg

many thanks to both for replying to my thread, it is very much appreciated.

Ok, so it seems there is some validity in using the DMA then. I think where I may have been getting myself slightly confused, is that I wasn't aligning the DMA with a standard EMA or SMA to try and remove some of the noise.

I can now see the possibility of using it for trend trades for which I shall delve deeper but do either of you use DMA for any intraday trades and do you have a preference on what timeframe tends to suit the DMA usage?

I have attached a couple of images from my charts using both the suggestions;




Again many thanks
Bry

I have used it on intraday trading. It is good on any time frame but namely "time charts". The 50% displacement shows the cyclic movement of any moving average you use. Watch and see how price action moves on the cross of the MA with its MA displacement. You will begin to notice that the crests and troughs of the DMA is also the the highs and lows of the price action.

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  #7 (permalink)
 brydubtrade 
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Hi perryg

Thanks, I shall check the PA today and play around with the DMA's. Im currently looking at a 15m timeframe but will also extend to higher charts.

Very much appreciated

Cheers
Bry

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  #8 (permalink)
 cory 
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fwiw, Bill Williams "Aligator" indicator and Ichimoku Kinko Hyo indicator both use DMAs.

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 Anagami 
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Can use intraday or longer, doesn't matter.

You can trade the channel crossover. Crosses above, buy. Crosses below, sell.

Does great in a trending environment, gets killed in range.

So you need a contextual filter. That's the hard part.

OR

You can wait for the 1st pullback after a crossover and a strong move. You're trading price for information in that case.

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 Anagami 
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cory View Post
fwiw, Bill Williams "Aligator" indicator and Ichimoku Kinko Hyo indicator both use DMAs.

Joe DiNapolli also has a few setups using DMA.

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 brydubtrade 
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Hi anagami & cory

thanks for the information you gave here, all appreciated. I shall be digging deeper into using DMA's for the non-range trade setups... seems it has some legs indeed..!

I shall update when I have played a bit more and got some settings/timeframes that seem to work for me.

Again many thanks
Bry

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 Anagami 
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brydubtrade View Post
Hi anagami & cory

thanks for the information you gave here, all appreciated. I shall be digging deeper into using DMA's for the non-range trade setups... seems it has some legs indeed..!

I shall update when I have played a bit more and got some settings/timeframes that seem to work for me.

Again many thanks
Bry

Yah, you're welcome. If you end up trading with it, post some trades.

"The mind is its own place, and in itself can make a heaven of hell, a hell of heaven." - Milton
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 brydubtrade 
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hi guys

just a quick update as I haven't abandoned this thread, I just decided to take a whole summer break and only just back...
I shall be looking again at the DMA and will post some trades if I use..

Thanks again
Bry

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 MWinfrey 
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I have a strategy built on nothing but a displaced moving average. It's doing pretty well overall. It isn't as good as my other 2 strategies but it's working. I'm using it on CL with a 4 tick BetterRenko chart. I settled on an EMA(SMA(Median, 45),34) with a displacement of +6 bars. It's a stop and reverse system where the entries are the cross of the 2 moving averages. I did a lot of testing to come up with those settings for the period I trade but they are working. I haven't tried the way @perryg described but will do so.

By the way, I like using Median pricetype because it smooths the line a bit.

Mike

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 brydubtrade 
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Hi MWinfrey

Thanks, sounds like you tested a fair amount to get those settings - Do those settings apply on any timeframe?

Cheers
Bry

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 MWinfrey 
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brydubtrade View Post
Hi MWinfrey

Thanks, sounds like you tested a fair amount to get those settings - Do those settings apply on any timeframe?

Cheers
Bry

not necessarily...As you said I've done a fair amount of testing to get those settings for a 4 tick betterrenko brick. I spent no time testing other size bricks because I use the 4 tick brick almost exclusively. Just so you know, I tested over 2 years of historic data and almost 2000 trades to come up with those settings. Also, variations of those settings work as well. I don't remember what those settings are but I remember there is a relatively wide range of settings that work.

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 brydubtrade 
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thanks for sharing your hard effort, it is so much appreciated.

I shall test some more (once my main trading workstation is back online [that and my backup machine both blew-up this week so I am currently waiting on a replacement which is delayed..!])...

Thanks again
Bry

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 MWinfrey 
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brydubtrade View Post
thanks for sharing your hard effort, it is so much appreciated.

I shall test some more (once my main trading workstation is back online [that and my backup machine both blew-up this week so I am currently waiting on a replacement which is delayed..!])...

Thanks again
Bry

You're welcome...Also, I think I failed to make this clear. I tested for the times that I trade which are 8-11 am central time for CL. I only trade those times because that's what I personally want to do. Thought I'd mention that because CL outside of those times CL behaves differently.

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 brydubtrade 
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thanks for that...

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 TempletonPeck 
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MWinfrey View Post
I have a strategy built on nothing but a displaced moving average. It's doing pretty well overall. It isn't as good as my other 2 strategies but it's working. I'm using it on CL with a 4 tick BetterRenko chart. I settled on an EMA(SMA(Median, 45),34) with a displacement of +6 bars. It's a stop and reverse system where the entries are the cross of the 2 moving averages. I did a lot of testing to come up with those settings for the period I trade but they are working. I haven't tried the way @perryg described but will do so.

By the way, I like using Median pricetype because it smooths the line a bit.

Mike

Just for clarification: Is this the way you set it up?

Thanks for sharing!



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 MWinfrey 
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TempletonPeck View Post
Just for clarification: Is this the way you set it up?

Thanks for sharing!


Yes that is correct. Also put up the same moving average with 0 displacement. That way you can see when the crosses occur. You don't necessarily have to trade the crosses. You can use the crosses to tell you when the trend has changed and wait for retraces to get in. I've looked at that but have not studied it extensively.

I should also say that over all the back testing (2+ years) AND forward testing (6+ months), trading like that is a ~40% win rate and can take some pretty ugly losses. I use a 31 tick stop loss. So, you have to be able to weather the storm in order to overcome the draw downs. However, because this is a stop and reverse system, you get the big moves along with some disappointing trades where you see nice profit only for it to reverse to take most of it of even turn it into a loss. That begs the question, "why not implement a trailing stop?" Overall that just doesn't help profit at all. In fact, everything I've tried has caused profit to suffer significantly without helping the equity curve.

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