The displaced moving average is one of many tools investors use to analyze stocks. It filters noise from some of the market moves in creating trendlines that narrow a savvy investor's view or perception of the prospects of a given stock.
So what is it, exactly? To get the displaced moving average, you first take the simple moving average, which you can get by adding up all of closing prices for some time periods, and then dividing that by the number of time periods. If all of your periods were in one day, your simple moving average would just be the average price for that day.
For a displaced moving average, you take the simple moving average and move it (i.e., "displace" it) forward or backward in time for a smoother line. A negative average price change will turn into a lag, and a positive average price change will jump slightly ahead, relative to the original simple moving average.
Many investors believe using a displaced moving average with a period of a few weeks (for short-run) or a few years (for long-run) has greater predictive power than regular ol' simple moving averages.
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Finance: What are moving averages?7 Views
Finance a la shmoop... what are moving averages? ooh I need another tissue that [Girl crying]
average I just can't get enough so moving okay yeah yeah that's not at all
what this term is about here's a chart here's a set of trailing averages 50-day
the blue line they're hundred-day the black line and 200-day the green line
there... note that we say trailing average why trailing? well people we lost our
crystal ball yeah Warren we know you took it [Warren Buffett eating dinner]
so averages for normal humans can only be trailing because trailing stockticker
closing prices give us data we can actually use stock averages don't take
future data that we're merely guessing at on their charts... only
real numbers that we can actually point to so here's the 50-day average for [50-day average for coca cola stock]
coca-cola stock KO in 2012 and if we move forward a year and change well here
it's a 50-day average right there looks a little bit different and while the 50
data input elements from its closing price each day vary so the average of
those data points will move and why do moving averages matter well for
fundamental analysts kinds of investors you know the people who care just about [Fundamental analyst people appear]
the cash flow and earnings and margins and revenue growth of companies well
really don't matter but for chartist types of investors that is those who
focus really only about trading trends and shapes and curves and the metrics
behind what patterns of stocks take in the future well, they matter a lot then
in fact the 200-day moving average is generally a kind of Chartist living [Priests in church]
Bible for most Wall Street traders and taking meaning from it is all about
recognizing patterns and then imputing likely future patterns based off of
those shapes for example if you're looking here at the peak of a Head and [Head and shoulders stock price graph]
Shoulders chart, the trailing average of this
say 50-day set here of data points is the line about here but if you move
forward and look at the back half well then the moving average is about here [Moving average lines moves]
and if you consider the entire chart well it's about here and the lines are
there in theory to give color as to what direction the
market or this given stock is heading and yep sometimes it works and sometimes
it doesn't [Man eating dinner with Warren Buffett]
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