What is Different of Moving Average？
Different of Moving Average (DMA)is a short to mid term technical indicator used in stock market analysis. It is also known as the "Parallel Line Difference indicator" and is commonly used to analyze the market trend of major indices and individual stocks.
It analyzes the momentum of buying & selling and predicts future price trends based on the difference between two moving averages of different periods. DMA is calculated by subtracting the long-term moving average from the short-term moving average.
Calculation
The calculation process of DMA is straightforward. For example, to calculate the DMA indicator based on 10-day and 50-day moving averages, the process is as follows:
DMA (10) = 10-day moving average - 50-day moving average
AMA (10) = 10-day moving average
DMA indicators can be calculated using different time periods, including daily, weekly, monthly, yearly, and minute DMA indicators. Daily and weekly DMA indicators are commonly used for stock market analysis. Although their values may differ, the basic calculation method remains the same.
How to trade with DMA?
Using the movement direction of DMA and AMA lines to analyze stock market trends:
- When both DMA and AMA are above zero and moving upward, it indicates a bull market, and investors can buy or hold stocks.
- When both DMA and AMA are below zero and moving downward, it indicates a bear market, and investors can sell stocks or wait and watch.
- If both lines have been moving upward for some time but then start moving downward, it indicates a downward trend, and investors can sell or wait and watch.
- If both lines have been moving downward for some time but then start moving upward, it indicates an upcoming upward trend, and investors can buy or hold stocks.
To simply put, when the DMA line crosses above the AMA line (forming a golden cross), it signals a buy signal, and when the DMA line crosses below the AMA line (forming a death cross), it signals a sell signal.
