The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

Cycle Analysis

average can easily be created by shifting the end‐displaced or non‐centered

moving average back by half its period. As we saw in Chapter 11, the exact

amount to shift back is calculated using (N−1)/2. Hence, for an 11‐period

end‐displaced moving average, we need to displace the moving average back

by (11−1)/2 = 5 periods. This formula works well with odd numbers. For even

numbers, round down to the closest integer value. A centered moving average

tracks price cycles very closely. In Figure 20.22, we notice the centered moving

average tracing out the peaks and troughs very clearly from the price action.

This makes the search for potential cycles much more visually accessible. The

centered moving average filters out all extraneous price activity, revealing the

underlying cycles with greater clarity.

figurE 20.21 Identifying Cycles Visually on the Daily Chart of AUDUSD.

Source: MetaTrader 4

figurE 20.22 Centered Moving Average on the Hourly Chart of GBPUSD.

Source: MetaTrader 4