Distance from MA

I was curious if anyone has any experience with using 'distance from MA'.

Here's what I mean. Lets say a stock is trading at $45 and its 50 day MA is at $40. We can create an indicator of sorts by taking the difference and then normalizong (say by dividing by the share price).

If we continue to do this for every series (daily close and each corresponding 50 day MA) we get a sort of indicator which flows as/if the security goes up and down criss crossing its 50 day MA.

Needless to say, you can use any MA, I just used the 50 day one as an example.

I first ran into this idea when reading thestreet.com. John Roque quite often writes about it and uses it in his graphs (although he goes through some more complex iterations - but the main element is still distance from MA).

So? any comments?

 

wait.... isn't that macd?

 

Do you mean something like this?

Close > Ref( MA( Close, 50 ), -1 );

 

I just eyeball the distance..

 

A whole mechanical trading system has been built around this concept of a price's deviation from it's moving average. It's called "x dev":

http://stockwerld.com/ebayrfmd.gif

http://stockwerld.com/xdevwerks.htm

 

Pristine teaches trading condsidering the distance to the MA's too.

 

Bollinger band measures the distance in terms of statistics.

 

Pristine method.....more than 8% above 20ma is considered extended (on daily)

 

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Yes and it varies.

Also in the best of trends, price goes sideways again ;
lagging ma catches up again.

And its a little bit like saying average bull market lasts 3 years;
mabe true & some last 10 years also, approximatelyy

 

No. MACD involves MA but not the way I described it. For details see:
http://stockcharts.com/education/IndicatorAnalysis/indic_MACD1.html

BB bracket price with 2 std dev (volatility). Again, not the same thing.

It seems this is not that popular or it is not usually quantified (as someone said, a trader can 'eyeball it').