The parallel line difference indicator uses two average lines in different periods to gauge the current buying and selling momentum and future price trends. It is a shortto mid-term investment indicator.
DMA = short-term average stock price minus the long-term average stock price = MA (SHORT) - MA (LONG)
AMA = DMA short-term average
Take the 10th and 60th DMA indicatoras an example, the calculation process is as follows:
DMA(10) = 10-day stock price average - 60-day stock price average
AMA(10) = 10-day DMA average
3.1 DMA line crosses the AMA line upwards could be considered as a buy signal; DMA line crosses the AMA line downwards as a sell signal.
3.2 When DMA and AMA are both > 0 (that is, they are above the zero line on the graph) and moving upward, it generally means that the stock market is in a long market, which is a signal to buy and you can buy or hold shares; when DMA and AMA both are less than 0 (that is, they are shown below the zero line on the graph) and moving downward, it is generally indicated that the stock market is in a short market, which is a sell signal and you can sell the stock or wait and see.
3.2 When DMA and AMA are both < 0, after a period of decline, if both moving up from the low at the same time, it is a buy signal; when DMA and AMA are both > 0, after a period of rising, if both start moving down from the top at the same time, it is a sell signal.
4.1 There is a greater probability of accuracy when cross signal occurs on DMA and indicator deviates from the stock price.
4.2 DMA indicator is also suitable for analysis with morphological theory.
4.3 DMA indicator, MACD indicator, and TRIX indicator form a group of indicators, which are mutually verified.