DMA (Dual Moving Average)
Definition
A Moving Average (MA) is an indicator curve obtained by calculating the average price of a stock over a specified period. The Dual Moving Average strategy employs two MAs of different periods: the fast MA (short-term MA) and the slow MA (long-term MA), to assess buy and sell timing strategies.
The Golden Cross and Death Cross of Moving Averages can partly reflect changes in stock price trends. Using the crossover points of these two MAs, traders can identify certain market trends and profit accordingly. A Golden Cross occurs when the fast MA crosses above the slow MA, indicating a bullish market, while a Death Cross occurs when the fast MA crosses below the slow MA, indicating a bearish market.
Components and Calculation of Moving Averages
Fast MA
Slow MA
Different types of MAs have different calculation methods, which can be understood through the following articles:
Simple Moving Average (SMA)
Exponential Moving Average (EMA)
Weighted Moving Average (WMA)
Double Exponential Moving Average (DEMA)
Triple Exponential Moving Average (TEMA)
Triangular Moving Average (TRIMA)
Parameters for Dual Moving Averages
Fast MA Period: Number of candlesticks used to calculate the fast MA.
Slow MA Period: Number of candlesticks used to calculate the slow MA.
Fast MA Smoothing Coefficient: Coefficient used to smooth the fast MA.
Slow MA Smoothing Coefficient: Coefficient used to smooth the slow MA.
Price Source: Determines which data (e.g., low, high, close) are used for each candlestick's calculation.
Moving Averages: Supports selection of different MA types, currently offering six types including SMA, EMA, WMA, DEMA, TEMA, and TRIMA. Each MA type smoothes price data to varying degrees.
How to Use Dual Moving Averages?
When the fast MA crosses above the slow MA, generating a Golden Cross signal, open long positions.
When the fast MA crosses below the slow MA, generating a Death Cross signal, open short positions.
Advantages and Disadvantages of Dual Moving Averages
Advantages:
Simplicity: Easy to understand and operate.
Effective Trend Identification: Quickly generates Golden Cross and Death Cross signals in response to changes in stock trends.
Reliable Trading Signals: MA crossovers are reliable buy and sell signals, minimizing noise interference.
Disadvantages:
Profitability in Trending Markets: Generates substantial profits in strong trending markets. In volatile markets, frequent crossovers may produce false signals, leading to significant capital erosion.
Lagging Indicator: MAs inherently lag behind real-time prices, potentially missing parts of trends. The structure of MAs dictates their lagging nature, possibly resulting in missed opportunities.
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