THE HAnDbook of TEcHnIcAl AnAlySISto which prices tend to revert after a certain amount of price excursion from
the line. It works well as a trend identifier in this mode, rather than tracking
shorter-term cycles. Figure 11.4 shows both 200-day centered and end-displaced
(non-centered) moving averages. The popular 200-day end-displaced moving av-
erage is seen providing reliable support to Gold prices.
(4) time adjustments/Displacements
As we have seen, we can displace a moving average back by half of its periodic-
ity to create a centered moving average. Centered moving averages do not lag
price and hence they are perfectly suited for identifying price cycles. But centered
moving averages lack interactivity with price and hence are unable to provide
useful trade signals. Moving averages may also be forward displaced by a certain
number of periods, with respect to the end-displaced moving average. A forward
displaced moving average offers two main advantages, namely:
- It provides interactivity with price and hence the ability to provide trade
signals. - It reduces the number of whipsaws experienced by a moving average of the
same periodicity.
Figure 11.5 shows two moving averages with identical periodicities with one
moving average shifted forward by N periods. We notice that the shifted moving
average experiences fewer price crossovers. This has the tendency of improving
the overall performance by virtue of suffering less loss resulting from excessive
crossovers. The forward displaced moving average experiences about 6 cross-
overs as compared to 18 crossovers experienced by the end-displaced moving
average.
figure 11.4 Centered versus Non-Centered Moving Averages on the Daily Chart of
Gold.
Source: MetaTrader 4