Moving averages remove short-term fluctuations in stock prices. A moved moving average (DMA) extends trends into the future, providing a multi-layered perspective. DMA can demonstrate a stock’s momentum and can reflect the effect of different international markets on each other. However, even the most complex moving average chart is prone to unforeseen calamities.
Despite their profession’s image as a wheel trader, the most successful traders have had to learn to live in the past, present and future simultaneously. A moved moving average (DMA) can be a useful tool in finding that multi-layered perspective.
Moving averages in general are technical analyzes designed to remove aberrations known as “noise” — a rumor or event — that could affect a stock’s price in the short term. This is done by recording the advance (or retreat) of a stock over a specified period of time and calculating an average that smooths out random fluctuations.
For example, a stock price may rise or fall precipitously based on rumors that the company is being sold, depending on whether the purported sale reflects a strong or weak position. The next day, if that information is exposed as false, the price could readjust almost immediately. Moving averages sort out those peaks and valleys. If the arc of a moving average chart crosses above or below a stock’s longest history, it can be an indicator of the stock’s good or bad momentum.
The problem with a standard moving average, however, is that it lives in the past and often lags trends. Shifted moving averages seek to extend the trend into the future, based on the existing price trajectory. Or, the moving average can be regressed into the past to provide a longer look at what appears to be volatile supply.
Amateur investors tend to look at the market as a whole. A moved moving average could demonstrate that a particular stock can be expected to continue moving higher despite a weakening market, or the other way around. Given the growing international interconnectedness of stock prices, some leading speculators, such as Louis Mendelsohn, have even developed simultaneously shifted moving averages to reflect the effect that different international markets can have on each other.
Of course, even the most complex moving average chart is just deadly, prone to the whims of the future. Even a stock that is said to be an “engine” could be about to be ambushed by an unforeseen calamity. The bursting of the dot.com bubble and the domino effect triggered by the home loan crisis would not have manifested on the estimated moving averages six months earlier.
However, any tool – such as the moved moving average – that will fine-tune the day-to-day clamor of financial markets can be worthwhile when taken at face value.
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