Constructing a DMA Feature from Short and Long Moving Averages

Summary

The document explains how to construct a DMA feature as the difference between a short-period and a long-period simple moving average. It identifies three inputs: the underlying price or feature, the short window, and the long window. Its worked example uses the opening price and compares 10-period and 50-period averages, subtracting the longer average from the shorter one.

This produces a feature whose value reflects the relative level of the two averages: positive when the short average is higher and negative when it is lower. The note is a concise feature-construction example rather than a trading strategy; it gives no entry or exit rules, empirical results, or guidance on selecting windows. It also does not discuss scaling the difference, handling missing observations, or preventing look-ahead bias. The example’s periods are illustrative and should not be interpreted as validated settings.

Key ideas

• DMA is calculated as a short-period simple moving average minus a long-period simple moving average.
• The underlying input can be a price feature such as the opening price.
• The example compares 10-period and 50-period averages.
• The resulting feature indicates the short average’s position relative to the long average.
• The document does not test the example periods or specify trading rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.