Displaced Moving Average

The displaced moving average is one of many tools investors use to analyze stocks. It filters noise from some of the market moves in creating trendlines that narrow a savvy investor's view or perception of the prospects of a given stock.

So what is it, exactly? To get the displaced moving average, you first take the simple moving average, which you can get by adding up all of closing prices for some time periods, and then dividing that by the number of time periods. If all of your periods were in one day, your simple moving average would just be the average price for that day.

For a displaced moving average, you take the simple moving average and move it (i.e., "displace" it) forward or backward in time for a smoother line. A negative average price change will turn into a lag, and a positive average price change will jump slightly ahead, relative to the original simple moving average.

Many investors believe using a displaced moving average with a period of a few weeks (for short-run) or a few years (for long-run) has greater predictive power than regular ol' simple moving averages.