FX TECHNICAL ANALYSIS
Finally, let’s look at EURUSD on the daily chart (figure 5). This time the period for the basic moving average (blue) is increased to 144 and, the displacement (magenta)
applied
to the 2nd line, 34. Obviously this is a tool for the longer term trader/ investor
but the impact is clear to see. Figure 4: 89 period Moving Average Displaced by 21
but this time pushed forward by 21 periods and you can immediately see the positive impact it has for trading -the spot price crossovers occur at later stages. Although this means that when the moves are valid ones it has the disadvantage of the trigger being at a worse rate, this is more than offset by the reduction in false breaks.
Simple Weighted
Exponential Displaced
Crossover 7
15 7 3
If we set this out in a statistical format for this period and using, not a trade above or below, but a close through the average, we get the figures in the above table. It is clear from this example how much more practical it is to use the Displaced Moving Average as a tool for intraday trading than it is for the other 3 types. While
20 FX TRADER MAGAZINE January - March 2012
the examples above show 2 Hourly charts, this method of establishing trend but eliminating ‘noise’ can be applied to all time periods from
Once again both moving averages capture the trend but the choppy price action during July and August 2011 detract from the effectiveness of the Simple moving average, while the Displaced was caught less often.
In conclusion I hope this article encourages a more active but flexible approach to the use of moving averages
in identifying intraday/ displacement’s
Figure 5: Daily chart
monthly down to hourly charts and makes a significant difference to accuracy of recognising trends and trading them.
daily trends and using them to trade profitably.
Alan Collins
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