The Displaced Moving Average (DMA) Strategy is a technical trading method that shifts a traditional moving average forward or backward in time to enhance trend clarity, early signal generation, and dynamic support/resistance identification. By displacing the moving average, traders can better visualise where price is likely to interact with trend-based levels—offering refined timing for pullbacks, breakouts, and trend reversals.

The strategy works especially well in trending markets, and it can be adapted for intraday, swing, and positional trades on forex, indices, gold, and crypto.

What Is a Displaced Moving Average?

A Displaced Moving Average is a standard moving average (SMA, EMA, or WMA) that is shifted forward or backward by a fixed number of periods.

• Positive displacement (forward): MA lags behind price — good for support/resistance zones
• Negative displacement (backward): MA anticipates price — good for early trend entries

Most common use: positive displacement (e.g. +3 to +5) to project where price may pull back to within a trend.

Strategy Objective

• Use the displaced MA to define trend structure and future reaction zones
• Time entries based on retests of the displaced MA
• Confirm trades with price action and momentum tools for maximum precision

Indicators Required

• Displaced EMA or SMA – Period: 20 or 50, displaced by +3 to +5
• Optional: MACD, RSI (14), or Stochastic for confluence
• Price action tools like trendlines or Fibonacci levels

Step-by-Step Strategy Guide

Step 1: Define Trend Direction with the Displaced MA

• Add EMA (20) displaced by +5
• If price consistently trades above the upward-sloping DMA, the trend is bullish
• If price is below a downward-sloping DMA, the trend is bearish

Step 2: Wait for Price to Retrace Toward the DMA

• In a bullish trend:
  • Wait for price to pull back toward the DMA
  • Look for rejection candles near the DMA zone
• In a bearish trend:
  • Watch for price to bounce up into the DMA
  • Seek bearish reversal candles at or near the DMA

Step 3: Confirm Entry with Candlestick or Indicator Signal

• Look for:
  • Pin bars, engulfing patterns, or inside bar breakouts at the DMA
  • RSI > 50 for buys, < 50 for sells
  • MACD crossover in direction of the trend
  • Confluence with structure or Fibonacci levels

Step 4: Execute Trade and Manage Risk

• Entry: After confirmation candle closes near the DMA
• Stop Loss:
  • Just below swing low (for long) or above swing high (for short)
  • Or 1.5x ATR from entry for dynamic placement
• Take Profit:
  • Next structure level or major support/resistance
  • Or use 2:1 reward-to-risk ratio
  • Optionally trail stop behind the displaced MA

Example: EUR/USD H1 Bullish Setup with Displaced EMA

• EMA (20) displaced by +5 shows clean upward slope
• Price retraces from 1.0915 to 1.0892 (DMA zone)
• Bullish engulfing candle forms at DMA
• Entry: 1.0898
• SL: 1.0875
• TP: 1.0948
• R:R = 2:1 with clear trend continuation and minimal drawdown

Alternative Use: DMA Crossover System

• Use two DMAs:
  • Fast EMA (10, displaced +3)
  • Slow EMA (30, displaced +5)
• Buy when fast crosses above slow and both slope upward
• Sell when fast crosses below slow and both slope downward
• Confirm with volume or momentum indicator

Best Market Conditions

• Trending markets with clean higher highs/lows or lower highs/lows
• Instruments with momentum (e.g. GBP/JPY, XAU/USD, NAS100, BTC/USD)
• Avoid sideways markets where DMA becomes flat

Advantages of the DMA Strategy

• Provides advanced dynamic levels for pullback entries
• Helps traders visualise future support/resistance
• Avoids common moving average lag problems
• Offers early entries with reduced false signals
• Adaptable to all timeframes and asset classes

Common Mistakes to Avoid

• Trading DMA when it’s flat or in a sideways market
• Ignoring price action confirmation near the DMA
• Over-displacing the MA, which causes disconnection from price
• Using without proper stop loss discipline

Conclusion

The Displaced Moving Average Strategy is a precise, forward-thinking trading technique that helps traders time entries with trend alignment, reduced lag, and clearer pullback zones. Whether you’re trading breakouts or trend continuations, the DMA provides dynamic levels that improve timing and confidence.

To master this strategy and integrate it into a full technical trading system with institutional-level execution, enrol in our professional Trading Courses and trade with accuracy, discipline, and structure.