FX TECHNICAL ANALYSIS
The Displaced Moving Average
Or Cutting Out the Noise in Intraday EURUSD Trading
Te key to technical analysis is a cold, disciplined reading of the price data, the direction for sentiment that this highlights of
and that data the into probable
interpretation future
movements and targets. Tis sounds easy but a key element is the purity of the data or, if that’s not possible (and it rarely is), a stripping away of the noise that surrounds price movement and the resulting effect it has on technical indicators. Tis is especially valid when it comes to intraday trading when each pip can have significant value.
By ‘noise’ I don’t mean the shouting of traders, brokers and salespeople that used to distract technical analysts throughout trading rooms but the noise created by volatile market movements - Stop losses triggered, event reactions, economic figure announcements and pronouncements by media analysts.
One of the simplest, and therefore 18 FX TRADER MAGAZINE January - March 2012 Figure 1: Simple 89 period Moving Average
best, methods of identifying trend is whether prices are trading above or below moving averages, even using a spot crossover of that moving average as a trigger for opening/closing of positions. It has been a signal that I have used for some considerable time but one that I’ve adapted to sidestep the ‘noise’ of the market generating too many false signals.
Tis adaptation is displacement.
First let’s quickly talk of the main types of moving average used:
S
imple - a total of the relevant date is divided by the number of observations. Terefore
each piece of data has the same percentage weighting.
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