Hey fellow traders! If you're looking to enhance your trading toolbox, let me introduce you to the 3rd Generation Moving Average (MA). This advanced version of the standard Moving Average indicator is designed to minimize lag while still providing accurate trend direction.
This method, initially outlined by Manfred G. Dürschner in his article, uses a simple yet effective approach to reduce temporal lag as the Moving Average period increases. The implementation specifically uses λ = 2, which optimizes lag reduction. Just a heads up, using a higher λ value brings the indicator closer to a classic moving average.
Input Parameters
- MA_Period (default = 50) — This sets the period for the 3rd Generation Moving Average.
- MA_Method (default = 1) — Choose your moving average method: 0 for SMA, 1 for EMA, 2 for SMMA, and 3 for LWMA.
- MA_Applied_Price (default = 5) — Select the price type for calculating the moving average: 0 for PRICE_CLOSE, 1 for PRICE_OPEN, 2 for PRICE_HIGH, 3 for PRICE_LOW, 4 for PRICE_MEDIAN, 5 for PRICE_TYPICAL, and 6 for PRICE_WEIGHTED.
As you can see in the chart, the 3rd Generation Moving Average (the red line) lags slightly less than the traditional EMA (the blue line), allowing it to respond quicker to price changes. However, keep in mind that it can still produce delays and may give false signals from time to time. Use this indicator just like you would a standard moving average to gauge the current trend direction.
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