What Is a Displaced Moving Average (DMA) Definition & Uses

The Displaced Moving Average (DMA) is a powerful technical analysis tool used by traders to smooth price data and shift it forward or backward on a chart. Unlike standard moving averages that simply average past prices, DMA adds a displacement element, allowing traders to better anticipate price trends or lag data to confirm them. This article explores how DMA works, its types, and how it is used in real-world trading scenarios.

A DMA is essentially a moving average—simple or exponential—that is shifted horizontally on a chart. This shift can be forward (future projection) or backward (historical alignment), giving traders a visual edge in spotting trends or entry/exit points.

Formula for DMA

• DMA = Moving Average (SMA or EMA) shifted by 'n' periods
  

• If shifted forward: it anticipates price movements
  

• If shifted backward: it confirms price actions

Displaced Simple Moving Average (DSMA)

Applies a shift to a simple moving average, commonly used for smoother trend observation.

Displaced Exponential Moving Average (DEMA)

Applies displacement to an EMA, making it more responsive to price changes while maintaining trend clarity.

Smoother Trend Confirmation

DMA reduces market noise and offers a clearer trend line compared to standard MAs.

Better Entry and Exit Points

Forward-shifted DMA can help traders act earlier during trend reversals or breakouts.

Visual Clarity

By offsetting the moving average line, traders can avoid confusion from price-line overlap, especially in fast markets.

Trend Identification

DMA can visually confirm the trend direction. If the price remains above a forward-shifted DMA, it suggests bullish momentum.

Support and Resistance Levels

DMAs act as dynamic support or resistance zones due to their smoothed characteristics.

Crossover Strategy

DMA crossovers with price or other moving averages can signal potential entry or exit points.

Combination with Indicators

Combining DMA with RSI, MACD, or Bollinger Bands can strengthen signal reliability.

• Period: Typically 10, 20, 50, or 100
  

• Displacement: +2 to +5 for anticipation or -2 to -5 for confirmation
  These parameters can be adjusted based on the asset class or time frame

• Offers early signals in trending markets
  

• Useful in fast-moving instruments like indices and forex
  

• Reduces emotional noise in chart reading
  

• Works well with short-term and long-term strategies

• Forward displacement can cause false signals in volatile or range-bound markets
  

• Not predictive on its own—should be used with other indicators
  

• May require tuning for specific stocks or timeframes

• Intraday Traders: Use short-period DMA to catch quick momentum trades
  

• Swing Traders: Use DMA to hold positions across multi-day trends
  

• Institutional Traders: May use DMA in algorithmic models for smoothing volatility

The Displaced Moving Average is a versatile tool that enhances a trader’s ability to identify trends, time entries, and improve chart clarity. Whether you’re a novice or an experienced trader, understanding how to apply DMA strategically can offer a unique edge in today’s dynamic markets. Just remember—it’s best used as part of a broader trading system, not in isolation.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.