Hello,
Third Generation Moving Average is a Client Side VTL indicator. It is an advanced version of the standard moving average (MA), which implements a rather simple lag-reducing procedure based on the longer MA period. The method was first described by Dr. Mafred Durschner. Moving averages are supposed to smooth data and to remove noise and useless information. Multiple moving average variants are used widely, for example Simple Moving Average (SMA) or Exponentially Moving Average (EMA). One challenge is that moving averages introduce a lag, i.e. the smoothed curve follows the trend usually later. 3rd generation MA reduces the lag and follows price trends closely.
As you see in the image, the 3rd Generation MA (red line) offers slightly less lag than the conventional EMA (green line) and reacts to the price changes faster. Unfortunately, it is still prone to lag and may produce false signals. You can use the 3rd Generation Moving Average indicator the same as the standard moving average, to detect the current trend direction. It can be used to generate trading signals also, price crossing the 3rd Generation MA can be used as a buy signal and vice versa for sell signals. It is better to use this with other confirmatory signals.
3rdGenMA.txt (8.41 KB)