Trading by Moving Average Offset DMA

Displaced forward moving averages (DMA) in most cases are used to move a stop order to exit a trading position. The use of shifted moving averages is completely similar to the use of trading Parabolic SAR indicator.

What is a biased moving average?

DMA(NxM) or displaced moving averages = SMA(N) - this is a common simple moving average, which is shifted by some number (M) of time periods ahead.

To install DMA on the chart of the Metatrader 4 trading terminalSelect the Moving Average indicator, set the period and the M value in the "Shift" column.

According to the theory of Joe DiNapoli (Joe DiNapoli), to hold a trading position and measure the trend makes sense to use the following combinations of DMA, as:

3x3, 7x5, 25x5.

The specific choice of the shifted moving average depends on the volatility of the trading asset, as well as the scale used, as well as the time period.

In this example, we look at 2 averages, a biased and an unbiased 15-day simple moving average for the rising prices of RAO UES stock. In this example, the curve DMA is shifted slightly to the right by a parallel shift to the Five Trading Periods.

A Buy trade position is held as long as the closing prices are above the displaced moving average DMA (15, 5). In case this target would be used for SMA(15) instead of DMA(15, 5), then this position would have been closed much earlier by 5 bars. Displaced moving average DMA allows us to continue to stay in the trend for a longer period of time, while closing the trading position in time at the very reversal of the trend.