A dual crossover moving average
In the previous chapter, we wrote a method to check for an increasing trend. We will take that example forward in this chapter by developing a method to check for a dual crossover moving average.
A dual crossover moving average (DMAC) is a simple indicator to show the short-term trend of a stock compared to a long-term trend.
The following figure shows how the DMAC works:
Consider a stock, with closing prices as shown above. First, we calculate two moving average trends. The short-term (5-day) moving average is calculated by taking the moving average for a short number of days. The long-term moving average is calculated by taking the moving average for a longer number of days, for example the moving average of the last 10 days.
When we plot the values of the long- term and short-term moving average graphs, we see that at certain points, the short-term graph crosses from below the long-term to above the long-term graph. This point represents a Buy Signal. At other...
