💥In the previous section, we discussed shifting the moving average up and down to form a band that helps filter out false signals. Using the same idea, we can filter out false signals by shifting the moving averages, but this time to the right instead of up and down.
💥Moving the moving average to the right slows down the signals generated by the moving averages. Although this can be a disadvantage, it has a positive effect by reducing jitter and making fake crossovers of the price line with moving averages more difficult to occur. The effect is similar to filtering out false signals, so this method should be applied to moving averages with a short number of days to compensate for the slowness of the signal caused by shifting.
💥One admired technical analyst and expert in using this method is Joe Dinapoli, who named this method of shifting the moving average to the right "Displaced Moving Average." He suggests using a 25-day moving average with a 3-day shift to the right (symbolic 25x3) and a 3-day displaced 3-day moving average (3x3).
💥For trading signals, it is the same as using a simple moving average: a cut up signal indicates a buy, and a cut down signal indicates a sell, only that the signal will happen a little later, but there will be fewer false signals, which is a characteristic of the displaced moving average.
💥Dinapoli also proposed the concept of Double Repenetration (DR) as a supplement to the displaced moving average. If the price closes below the displaced moving average, then bounces back above it, and then crosses below the displaced moving average again (i.e., it crosses two times, hence the name double repenetration), it appears that the short-term trend of the price during the double repenetration is relatively flat. This is a trend change signal that is more pronounced than a normal downtrend, and in the case of an uptrend, it only changes direction. However, the double repenetration doesn't have to happen every time a trend changes. It only makes the signal stronger if it does occur.
💥However, Dinapoli noted that although the displaced moving average (even with DR) gives good signals, it is prone to errors. Therefore, it should be accompanied by signals based on Fibonacci ratios.