What is the weakness of a centered moving average (CMA)?

The centered moving average (CMA) does indeed have the characteristic of being displaced backward in time, which is its primary weakness. Since the CMA is an average calculated based on a certain number of periods, the resulting value represents the average for a time period that occurs after the data used to calculate it. This means that it does not reflect current market conditions effectively—it provides a smoothed view of the data that tends to lag behind current events.

This lagging effect can be problematic for traders or analysts who are trying to make timely decisions based on the most current information. In environments where rapid changes occur, relying on a CMA could lead to decisions made on outdated data, potentially resulting in missed opportunities or increased risk.

In contrast, other methods, like exponential moving averages, allow for a more current perspective by placing more weight on more recent observations. Thus, the backward displacement of the CMA highlights its inadequacies in capturing real-time market dynamics, making it less effective for immediate decision-making in volatile environments.