DMA Displaced Moving Average Indicator for MT5

December 5, 2022

1650

Introduction to the DMA Displaced Moving Average Indicator

Moving average crossovers are some of the simplest types of trade signals. As such, multiple moving average crossover indicators are common. However, this indicator is quite unique because it allows the displacement of moving average lines which is another layer of customizability that traders can use.

What is the DMA Displaced Moving Average Indicator?

The DMA Indicator or Displaced Moving Average Indicator is a trend following technical indicator which is based on the concept of moving average crossovers. It is an indicator which identifies trend direction using multiple moving average lines. However, unlike most moving average crossover indicators, the DMA Indicator allows users to modify the characteristics of the moving average line by allowing displacements on the line that it plots, whether forward or backward.

This indicator plots three lines. The short-term moving average line is in red, the mid-term moving average line is in blue, while the long-term moving average line is in lime.

Trend direction is identified based on how the moving average lines overlap. The trend bias is bullish whenever the faster moving average line is above the slower moving average line, and bearish when the lines are stacked inversely. Moving average lines which are not stacked in correctly with the faster line being in the middle of the mid-term and long-term line indicates an unclear momentum direction.

Crossovers wherein the moving average lines become stacked correctly can be considered as a valid reversal signal.

How the DMA Displaced Moving Average Indicator Works?

This indicator has an algorithm that plots three moving average lines. These moving average lines can be modified to whatever method of calculation the user wants. It also allows other modifications such as “Applied Price”. The additional modification which is the highlight of this indicator is the horizontal shifts forward and back.

How to use the DMA Displaced Moving Average Indicator for MT5

This indicator has several options and variables which can be modified within its settings.

Options with a label “SR” refer to the short-term moving average, options with “MR” refer to the mid-term moving average, while options with “LR” refer to the long-term moving average.

“Smoothing Type” refers to the type of moving average used.

“Period” refers to the number of bars used for the moving average calculation.

“Price Constant” refers to the price point on each bar applied to the formula.

“Horizontal Shift” refers to the displacement applied on the moving average line.

Buy Trade Setup

When to Enter?

Open a buy order as soon as the moving average lines crossover wherein the short-term moving average is on top, the mid-term moving average in the middle, and the long-term moving average at the bottom.

When to Exit?

Close the trade as soon as price closes below the mid-term moving average line.

Sell Trade Setup

When to Enter?

Open a sell order as soon as the moving average lines crossover wherein the short-term moving average is at the bottom, the mid-term moving average in the middle, and the long-term moving average on top.

When to Exit?

Close the trade as soon as price closes above the mid-term moving average line.

Conclusion

Multiple moving average crossover signals can be very effective trend following signals. However, it should not be followed blindly. Instead, use it as part of a trading strategy in confluence with other technical indications.