Technical Indicators: M (part 4)
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Moving Average, Displaced
The Displaced Moving Average takes the current moving average and shifts it forward (or backward) in time. Use to de-trend the data, for cycle estimation, for phasing or as a simple moving average trading system.
While the first number in the study specifies the period of a simple moving average (e.g., 28 days), the second parameter specifies the shift period (e.g., 5 days); enter a negative number to shift the moving average back (e.g., -14 days). When the moving average is shifted back, the remaining portion of the study is computed with the moving average based on the available data for each day (e.g., 13 days, 12 days, etc.)
The mathematics of a moving average will always force it to follow or lag the actual price data. By centering the moving average, you will have a more accurate picture of the moving average relative to the current price on the chart. A Displaced Moving Average study could be quite useful in locating and estimating cycles.
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Moving Average, Double Exponential
The Double Exponential Moving Average (DEMA) is a combination of a single exponential moving average and a double exponential moving average. The advantage is that gives a reduced amount of lag time than either of the two separate moving averages alone.
The Double Exponential Moving Average can be applied in the same manner as the Simple Moving Average or Exponential Moving Average. When price crosses the moving average and increases, a continuing uptrend can be expected.
The DEMA is calculated via:
(2 * n-day EMA) - (n-day EMA of EMA)
where EMA = exponential moving average
Moving Average, Exponential
The exponential moving average is but one type of a moving average. In a simple moving average, all price data has an equal weight in the computation of the average with the oldest value removed as each new value is added. In the exponential moving average equation the most recent market action is assigned greater importance as the average is calculated. The oldest pricing data in the exponential moving average is however never removed.
A buy signal occurs when the short and intermediate term averages cross from below to above the longer term average. Conversely, a sell signal is issued when the short and intermediate term averages cross from above to below the longer term average. Use longer term averages when trading only two exponential moving averages in a crossover system.
It may be worth noting that a 5-day exponential moving average normally will include more than 5 days worth of data and could include data from the entire life of a futures contract. In fact, these moving averages might be better identified by their actual "smoothing constants," since the number of days of data in the calculation is the same for a so-called 5-day average as for a 10-day average. Exponential calculations can arrive at different moving average values depending on your starting point.
Moving Average, Simple
The Simple Moving Average is calculated by summing the closing prices of the security for a period of time and then dividing this total by the number of time periods. Sometimes called an arithmetic moving average, the SMA is basically the average stock price over time.
Note that because the Simple Moving Average gives equal weight to each daily price, the longer the time period studied the greater the smoothing out of recent market volatility. Long-term moving averages smooth out all the minor fluctuations showing only longer-term trends. Shorter-term moving averages will show shorter term trends but at the expense of the long term.
Most of the time prices are on one side or the other of the moving average. As trends develop, the moving average will slope in the direction of the trend, showing the trend direction and some indication of its strength based on the steepness of the slope.
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Moving Average, Triangular
The Triangular Moving Averages is another indicator that shows the average value of a security's price over a period of time. Here the emphasis is placed on the middle of the time period selected. The calculation of a Triangular Moving Average yields curve that could also be referred to as a double-smoothed simple moving average.
Moving Average, Triple Exponential
The Triple Exponential Moving Average (TRIX) is an oscillator used to identify oversold and overbought markets as well as a momentum indicator. For use as an oscillator look for a positive value to indicate an overbought market and a negative value indicate an oversold market. When TRIX is used as a momentum indicator, a positive value suggests increasing momentum just as a negative value suggests momentum is decreasing. Some believe that the TRIX crossing above the zero line is a buy signal and a closing below the zero line is a sell signal. Divergence between price and TRIX can also indicate significant turning points in the market.
Two advantages of TRIX over other trend indicators is its filtration of market noise and a tendency to be a leading rather than a lagging indicator. By using triple exponential smoothing, "insignificant" cycles are filtered out. It can lead a market because it measures the difference between each bar's smoothed version of the price information. When used as a leading indicator, TRIX is best used in conjunction with another market-timing indicator so as to reduce false signals.
To calculate TRIX, an exponential moving average of the data is taken for the given period. Then, an exponential moving average is taken of that result for the same period, followed by another for the second result. The percent change in value of the third moving average is then returned as the value of the TRIX.
The value of the TRIX at the beginning of a data series is considered to be zero. Since it uses exponential moving averages, its initial values will include the zero value in its calculation. You may want to ignore values before three times the period has completed.
Moving Average, Variable
A Variable Moving Average is an exponential moving average that's able to automatically adjust its smoothing percentage based on market volatility. Sensitivity is increased by giving more weight given to the current data thus making it a better signal indicator for short and long term markets.
Most methods for calculating Moving Averages are unable to compensate for sideways moving prices versus trending markets and often produce numerous false signals. When prices move up and down over an extended period, longer term moving averages are slow to react to reversals in trend. By automatic adjustment of the smoothing constant, a Variable Moving Average adjusts its sensitivity and enables it to perform better in either type of market conditions.
To calculate the Variable Moving Average:
with VR = Volatility Ratio
VMA = [ { 0.0788 * VR } * Close ] + [ { (1 - 0.078) * VR } * yesterday's VMA ]
Moving Average, Weighted
A Weighted Moving Average is a Moving Average indicator that shows the average value of a security's price over a period of time with special emphasis on the more recent portions of the time period under analysis as opposed to the earlier.
The average is calculated by multiplying each of the previous day's data by a weight factor. That factor is based upon the number of days past the first day used in the Moving Average, for example use five times more weight to today's price than to a price five days ago.
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