DMA

Page 1

Advanced GET Trading Strategies; 15 July 2003, 12:05pm, by Marc Rinehart

Overview of 6/4 DMA Question: “In some charts posted I see the 6/4 DMA mentioned. Can you explain this one and how to use it?” Answer: DMA is abbreviation for Displaced Moving Average. It is explained better below.

Moving Average Review A moving average is an indicator that shows the average value of an issue over a specific time period. For example, a six period moving average would take the sum value (often the closing price of the bar) over six days, compute the sum, and divide by six. The longer the length of the moving average, the slower it reacts to the market and, conversely, the shorter the moving average, the more sensitive the moving average will be to a price change. Some ways moving averages can be used are to “smooth-out” price fluctuations and help emphasis the direction of a trend, if even a minor trend. For example, if a price is above a moving average, speculators and investors tend to buy; if a price is below a moving average, speculators and investors tend to sell.

Moving averages can be displaced, or offset by a given number of bars-- this is called a displaced moving average, or DMA. It is meaningful when the current price crosses the DMA. Early in AGET history the crossing of one DMA line was used as a signal for a trade entry. Over the years we researched for a better way to reduce premature entries or exits of trades. There is even an optimization routine in the AGET Moving Average menu which creates new variations of DMA settings based on the data and pivot swings provided. All are good methods or techniques, but the 6/4 DMA channeling technique has become the best standard to date.

6/4 Displaced Moving Average? The “6/4 Moving Average” is the same thing as the “6/4 DMA Channeling” technique, which is referred to in the Advanced GET manual, seminar video tapes, and demo disk. It combines two moving averages, which have slight variations, and says that trend reversal is not complete unless both the moving averages are crossed. The 6/4 DMA crossing both lines identify those issues that are higher probability candidates for a trend reversal. The 6/4 DMA Channeling technique should be used with a Type 1 or 2 Buy or Sell setup to help confirm that trend reversal. To manually create a “6/4 Moving Average” in the Advanced GET program, go to the Moving Average menu, and create two moving averages. Both moving averages will have a “Length” set to “6” and the “Offset” set to “4.” The difference between the two moving averages will be to set one moving average “Source” to “High” and change the color to “Blue;” the other set the “Source” to “Low” and make “Red” the color.

Page 2

To Create 6/4 DMA Channel with Older AGET Platform http://www.advancedget.com/Education/HowTo/InGet/6-4_dma.html The same procedure can be used to create a 6/4 DMA with the eSignal platform. Just enter create a moving average twice and enter the same moving averages as below. To set up the 6/4 Displace Moving Average talked about by Tom Joseph, you must first select the Moving Average toolbar button from the left had toolbar toward the bottom. This will bring up the Moving Averages window, in which you will see the default 20 Period moving average. Our next step will be to highlight that moving average by left clicking on it once. Now you can select the Edit button. In the next window, we will need to change the Length to 6, the Offset to 4, and the Source to High. Now hit OK. That gives us the top band of the 6/4 DMA. To get the bottom band, we need to now hit the New button. In the next window, set the Length to 6, Offset to 4, Source to Low, and change the color to Red, and hit OK. Saving the 6/4 DMA as a Template Once you have the 6/4 DMA set up, you can choose to save it, and any other Moving Average setups you use, as a Template. To do so, set up the MA and then select the Templates button. In the window that follows, give your Template a name, such as 6-4 DMA, and then hit the Save button. You now have that setup saved as a Template. To recall the template for future use, select the Moving Average button from the toolbar, select Templates, highlight the Template you want, and then hit the Load button. This will recall your Template setup, which you can then apply to the chart.