THE HAnDbook of TEcHnIcAl AnAlySISIn technical analysis, the average price is usually positioned at the last right-most
bar on the chart, that is, at the current bar. This is the non-centered or end-displaced
version of a moving average. It is technically incorrect to place the average price at
the last bar, but in technical analysis this is done because it is being used as a barrier
to price, that is, as potential levels of support and resistance, it is able to interact with
price. Although there is no price lag in the centered version, the moving average does
not extend to the most recent bars and therefore cannot provide a barrier to price.
It is interesting to note here that although the non-centered moving average is
technically incorrect with respect to the positioning of the average price, neverthe-
less it tends to work well in the markets as support and resistance. This is a perfect
example of the self-fulfilling prophecy at work.
In Figure 11.1, we see the 21-period centered moving average tracking price
closely while the non-centered or end-displaced moving average exhibits lag with
respect to price. The last few bars have been concealed for added clarity.
In Figure 11.2, we observe the same chart, but this time without concealing
half of the last N bars, that is, half of the 21 bars. We see the non-centered moving
average interacting with price, initially providing a sell signal and subsequently
acting as resistance at the second-to-the-last bar.
Many charting platforms do not offer the centered moving average as an option
when selecting the type of moving average to employ on the charts. Nevertheless,
a centered moving average can easily be created by shifting the end-displaced or
non-centered moving average back by half its period. The exact amount to shift back is
calculated using (N - 1) ÷ 2. Hence, for our 21-period end-displaced moving average,
we need to displace the moving back by (21 - 1) ÷ 2 = 10 periods. This formula works
well with odd numbers. For even numbers, round down to the closest integer value.
figure 11.1 Centered versus Non-Centered Moving Averages on the 4-Hour Chart
of the Nikkei 225.
Source: MetaTrader 4