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3 x 3 Displaced Moving Average

 
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zerohits

3 x 3 Displaced Moving Average

One of the most effective ways to use Moving Averages is to "Displace" them, and although there are many different values that you can use to either "shift" the MA lines "forward" or "backward" from the actual price bars on your chart, I would like to present to you a very practical Displaced Moving Average named the "3 x 3" by Joe DiNapoli and presented to the trading world in his outstanding book titled "Trading With DiNapoli Levels" (copyright 1998, Coast Investment Software).

I have used this "3 x 3" Displaced Moving Average on my charts for over a decade of trading, and it is simple to read and analyze.

I was very glad to see that our Alveo Software gives us the ability to place the "3 x 3" on our Alveo charts.

The "3 x 3" name refers to a 3 bar Simple Moving Average of the Closing Price that is "shifted forward" by 3 bars on your chart.

To envision this, imagine that you first plotted a 3 bar Moving Average without any "Displacement." It would plot on your chart like any other Simple Moving Average. But then imagine that you had the ability to "drag" your 3 bar Moving Average "forward" by 3 bars. That is precisely what the "Shift" variable in Alveo will do for you.

To plot a "3 x 3" Displaced Moving Average in Alveo, navigate to the SMA Settings and set the variable in the Period Box to 3, and verify that the Price Type is set to PRICE_CLOSE. Next, click on the Advanced choice in your SMA Settings, and then click on Series. Click on the Series Drop Down Menu and you enter the value of 3 in the box next to the variable "Shift". Click a few times in the SMA Settings box until you get to the place where you can choose OK. Presto, you have now placed the "3 x 3" on your chart.

Since the DiNapoli book was written over 20 years ago, I am sure that there are many sights that will explain how effective this Moving Average can be, but if you prefer to go to the original source book, it is available by googling Coast Investment Software or I just verified that there are a couple books of "Trading With DiNapoli Levels" on Amazon. It is one of my favorite all-time trading resources! Good luck and enjoy!

Sun, 02/24/2019 - 4:50am
 
skucchal

Very nice @zerohits. This has been a perpetual problem for me. Just tried a smaller displacement on a H4...18 SMA displaced 12. I use a sma of high prices, and low prices to give me an envelope instead of a single line.

Works like a charm.

Thanks. Very helpful.

 
zerohits

The author also recommends "7 x 5" a 7-bar MA displaced forward by 5 periods (bars) and a "25 x 5" which is a 25-bar MA which is shifted forward by 5 bars. Any of these settings can be used on all timeframes, but he uses the 7 x 5 and 25 x 5 on Intermediate and Long Term timeframes. But the 3 x 3 works great for me on all timeframes, intraday as well as Daily and Weekly Charts.

I have seen countless charts where the 3 x 3 keeps you in a trade for a very long time, and gets you out of a trade near the trade's extremes. It is a tremendous Stop Loss tool and also a versatile Trend Change or Reversal tool. And best of all, you get only very infrequent whipsaws, whereas a non-displaced MA will present many whipsaws along the way.

 
Bentknows

What are your entry and exit point? I am looking at this and don't see any obvious places to enter or exit

 
zerohits

Hello Bentknows, I have attached a chart with a 3 x 3 displaced MA on it. You would BUY when price cuts through the MA from underneath the MA, and you would SELL when price cuts through the MA from the top of the MA.

So you want to be short when the MA is to the right side of the Price Bars, and you would exit your short position when Price penetrates the MA from below.

If your MA was not displaced forward by 3 bars, the MA would not give you any of these good signals. I have attached the 3 x 3 displaced MA to this entry, and then I will attach a non-displaced 3-bar MA on my next post, so that you can compare the two charts.

I hope this helps to clarify the advantage of shifting a 3-bar MA forward by 3 bars.

Good trading!

daily.jpg
 
zerohits

Hello Bentknows, I have attached the same chart as above, except I put on a regular 3-bar MA that is not shifted (displaced).

Compare the two charts and you can see the advantage of using a 3-bar shifted MA.

Good trading!

daily-not displaced.jpg
 
gabill007.oj

What's the best Moving averages to use?

 
boss_hogg

This is very interesting! I will take it for a spin in the sandbox for sure. 18 more trades will get me to Gold II (God willing and the Creek don't rise!). Is this what I've been looking for? Thanks for sharing!

 
zerohits

Although the displaced MA is a very good simple system, there are so many other confirmatory tools to use in addition. DiNapoli writes in his book about the art of "fading" using a combination of Stochastic and MACD. And his book is full of Fibonacci tactics that he uses, while all his charts have the 3 x 3 on the price pane.

 
zerohits

Hi Gabill007, I personally use the 3 x 3 as my moving average. However, when using Bollinger Bands, Donchian Channels, and MA crossover systems, a "Centerline" MA should be used. This could be an 18 bar, 10 bar, 25 bar....

You should get used to using different length MA as you compare different study methods.....

But to start out simply, use the 3 bar MA, shifted forward 3 bars.... you will learn how awesome this simple technique can be, as a standalone trading technique....

 
boss_hogg

At a glance, it back tests really well with a stoch set to 12, 3, and 3.

 
zerohits

Have you noticed how the 3 x 3 has kept you in a Long Position in the EUR-USD today?

I am going to become eventually bearish in this pair, but not until the Daily chart has shown signs that the upside move is near completion.

 
boss_hogg

I have indeed noticed that. It actually just got me to Gold II! I really like this. I'm going to use another sandbox account and test the T-Line (8 EMA) shifted as well. I've been using that one for a bit and I think this little twist might push it over the top for me. Thanks again for sharing!

 
zerohits

Congrats on attaining your next level boss_hogg. I am still a couple levels behind you. Glad that I could be of some assistance.

 
bobwhite1946

Thanks for sharing. Very interesting.

 
skucchal

@zerohits.....your displaced SMA strategy is awesome....the settings can be tailored (I use 18 displaced 12)...but that is probably just a preference depending on which time frame we trade. I am using the same approach in my equity investing as well, with very good results.

I've commented before....but THANK YOU.

 
zerohits

I am glad that you are experimenting and having success with it.... skucchal....

FYI.... my other powerful Ocean indicators are warning of an upcoming resumption of the bearish trend in EUR-USD, so be careful and be ready for a trend change when the Daily price closes beneath the 3 x 3.... when that happens, hold on to your hat, the EUR-USD will make new lows, probably beneath 1.1000. but for now, it is still bullish but waning....

 
skucchal

Very Interesting....I'd like to learn more about your Ocean Indicators.

I track a 'slope' based on Ichimoku (equally powerful)....and yes...EUR is poised to take a dive starting 1.1216 (which is where the 50 day slope goes bearish - big time.

 
zerohits

Hi skucchal, I placed your 18 x 12 on my chart to see what it looked like. For longer term posturing, did you try DiNapoli's 25 x 5 and his 7 x 5? The displacement of 12 that you are employing might be a bit too much displacement, but if it works for you, keep it unless you see an advantage to using the 25 x 5..... you might try an 18 x 5 and see if it improves your chart.

I like the 3 bar displacement because it provides a "tighter" signal turm. However, I trade on intraday charts with a glance to the Daily always, whereas you are definitely a longer range trader. Good trading!

 
skucchal

Thanks zerohits...actually I trade H4 charts. So my 18x12 is a 3 day displaced 2 days...

6 of 4hr bars = 1 day. So 3 days = 18 on a H4.

try that:-)

 
zerohits

very cool skucchal. very creative. I will give that a whirl. all my intraday charts are warning of an impending tank of the EUR-USD. Time frames that I watch beside the Daily are the 12 hr, 8 hr, 6 hr, 4 hr and 2 hr.

in fact, I just looked at my 6 hr. chart and the last bar closed below the 3 x 3. Of course the Daily is still bullish, but I am ready to short this market intraday, and the Daily should follow below the 3 x 3 by the end of this week. I do tend to get in a bit early, and I am needing to correct this habit.

 
skucchal

Nothing to "correct" zerohits....before the long term structure shifts, the shorter term structures precede, giving quick short term profit opportunities (or alternatively, scaling into numerous shorts before the full structure reverses).

I've often found that trading with the daily trend provides me the easiest entry for long term. The 1 day trend following trade makes money (mostly), and at the end of it, the 3 day and 6 day structures shift...so once the daily trend finishes, I can choose to carry over my positions to align with the 6 day trend (because my entry was at a good price) or alternately, or I could book profits on at least some of my daily positions to keep cash coming in.

It is the only scenario where I scalp - in tune with the daily trend.

Hope that helps.

 
zerohits

Thanks skucchal, I have watched 3 videos on the Ichimuku System and I am adding the system to my arsenal. I am treating the 3 x 3 as a completely different (yet so simple) system. The Ichimuku System is a bit more complex but it sure is powerful.

 
skucchal

Thanks...to you too & Good luck with Ichimoku.

As a guide, since you follow a 3 day reversal (which is working well for me too), I set my longer term trend as 6 days (so instead of the standard 9,26,52, I use 6,36,324 on a H4). The latter settings allow me to see the 6 day trend in the context of a 54 day trend (54x6=324 on H4). 3x3 trades can then be taken in alignment with the 6 day slope.

All the best...Happy Trading & Good Luck.

 
zerohits

What I like about the Ichimoku System is that it is confirming the 3 x 3 strategy (or visa versa), And on the Daily Ichimoku System, the Lagging Span is currently in the Red Cloud, so that is telling me to wait to go Short on the Daily. And that is exactly what the 3 x 3 is telling me. So I might actually go Long until both the Daily 3 x 3 and the Daily Ichimoku System are both telling me that it is time to go Short. I am very impressed by the Ichimoku System, and I have noted that on the 4 hour chart it is telling us to go Long. And now the 3 x 3 on the 4 hour chart is also telling us to go long..... very interesting to say the least! Thank you!

 
skucchal

Hi zerohits....I tested 25x5 on a daily chart as well. Works very well especially for Indices. It supported my recent Long Trade on Gold. I found it particularly useful to draw 2 indicators (both with a displacement of 5)...a SMA25 as well as a Bollinger Band 25 (1 SD, displaced 5). The Bollinger Band 25 provided a good basis for placing stops/TP - on either side of the trade. Lower BB if taking Longs, and Upper BB if taking Shorts.

Thanks for that too.

Incidentally, I have a range of new stuff on Ichimoku posted on AUD/USD forum that you may not find in written literature (especially on my recently discovery for managing high volatility while keeping your stop losses very small. I am still researching it) - just in case you had an interest.

Happy Trading.

 
zerohits

Thank you skucchal. I am now running a Daily and 240 Min on the Ichimoku System in addition to a Daily and 240 Min on the 3 x 3
system. Continuing to digest this Ichimoku System. I like it...

I anticipate the EUR-USD Daily 3 x 3 turning Bearish either on the last day of the week today Friday or early next week. However, note how excellently the Daily 3 x 3 provided support on the big down reversal day Thursday. The bullish Euro crowd still have hope; However my secret weapon Ocean continues to warn of a Zero Hit Sell Signal on the Daily and 12-Hr and 8-Hr, and that will be a large drop in the Euro if indeed these Sell Signals get triggered.... Best to you!

 
zerohits

Hi fellow bee divers, I am really liking the 240 minute Ichimoku System; it is working like a champ alongside my 3 x 3 Displaced MA system. One thing I would like to add on the Ichimoku System: place a 34 bar Regression Line on it! see chart attached

Ichimoku with Regression Lines.jpg
 
shawnf22

This looks very interesting and very simple. I am going to try it in a simulated account. I have also been learning the ichimoku lately. So far I really like it.

 
skucchal

240 on a minute chart is a proxy for 4hrs (smallest tradeable trend) which is why it works so well. Same thing on a hourly chart will give long term 10 day trends, and on a 5 minute chart, gives the current daily trend.

 
zerohits

thank you skucchal. I look forward to plotting it on a 5 minute chart and see what wonders it may bring!

the best video that I have found so far on Ichimoku is here: https://www.youtube.com/watch?v=X5lxBTrN-Yk

but I feel that I am only just beginning to explore the wonders of this system...

 
skucchal

I saw the video...it's good and covers all the basics. Suggest you draw a 240 ema envelope (deviation of 1%) and it suddenly becomes clear what the entire ICHIMOKU system is all about (crossover of a slopes and the moving average - both). The 240 ema envelope is a fractal - going from 4hr on a 1 minute all the way to a 40day on a H4).

 
zerohits

I have attached an updated EUR-USD chart showing just 1 indicator: the 3 x 3 Displaced Moving Average...

You really can't get any simpler than that, unless you can trade on a chart that has NOTHING on it except the price bars...

This is a great standalone trading system, for complete beginners and for seasoned veterans....

When I started this post, the 3 x 3 displaced moving average was "under" the price bars, implying that Price was moving higher than the 3 x 3 and that we were in a bullish trend. This bullish trend lasted for 8 days. Then on Friday, March 1, the Price closed beneath the MA, or just barely rested ON the MA. At that point, the market could have gone either way, but yesterday March 4 the Price closed definitively below the MA, and there is no question that the market has signaled a downtrend, at least on the Daily timeframe. Today, March 5, as shown on the last bar of the chart, the market has continued the downtrend. I will be Short this market until the time that Price closes ABOVE the MA. Notice the distance from where price is now, to where the MA is.... that means that the Price could RALLY all the way UP to the MA, but as long as the Daily Close is not ABOVE the MA, we are still Bearish and it may be wise to Short the Market and watch it plummet some more.

Spend some time studying each price bar on this attached chart in relation to the MA, and you can see how awesome and simple this standalone chart is and will be.... good trading....

 
zerohits

Here is the chart that I printed today, March 5 and referenced in my above post....good trading....

Daily 3 x 3.jpg
 
skucchal

Hello Zerohits....I've been out of action as I have been travelling for a whole week.

Your 3x3 is really amazing.

Another relationship I am testing is your 25x5. Works really well on a hourly. It gives temporary oversold conditions on a daily trend and provides 'TP' price levels within a 3x3 day structure.

Welcome any other insights....I am combining Ichimoku with your displaced averages. On your 240 (minutes), on a minute chart, if we take positions when the cspan (36) crosses the 240 displaced Moving average (displaced by 12), it provides excellent 4 hour swing trades. Same thing on a 30 minute chart provides very good 5 day (weekly trend changes).

Any other insights are welcome.

 
zerohits

Hi skucchal,

good to hear from you...I have been out of action myself for a few days. just getting back to it.

I got my arse (british for "rear end") handed to me in the GBP this week. Gotta start over, it seems. Sometimes no matter how good our technical indicators are, the market has other plans to put us into nursing homes.... the Brexit debate between British Parliament and their Prime Minister made this GBP-USD very difficult to endure.... I should have known better, and now I am resolute to get back to it).

 
KevinBanks

I am thinking about adding 3x3 to my ichimoku. I seem to have good results with the ichimoku system and 3x3 might just make this system stronger.

 
zerohits

I agree Kevin. However, the Ichimoku has so much on it, that you might find it easier to run a separate chart on the 3 x 3 and keep referring back to it. I have a trading platform which enables multiple charts to be running on tabs, much like an Excel spreadsheet.
So I run the Ichimoku on the Daily Timeframe on one tab, the Ichimoku 240 minute on another tab, the 3 x 3 Daily on another tab, and the 3 x 3 240 minute on another tab. that way I can very easily click on my tabs to check the relation of price to the 3 x 3 on any time frame, and compare it to the Ichimoku on multiple tabs. Good trading...