Forex92
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Patrick Mulloy invented the Triple Exponential Moving Average (TEMA) in 1994. Trading with EMAs or oscillators has always had the issue of lag in trading choices. The TEMA was created to address this issue.
Using the price's moving average smooths out short term swings. But what if we double smooth the market motion with the EMA of the EMA? The new MA would give an even smoother picture of pricing movement, making it easier to discern trends and shifts. The TEMA's genius is in the trailing term added to the formula to deal with delayed signals.
CALCULATION
The formula for calculating the triple exponential moving average is:
TEMA=3xEMAofEMA+ (EMAof EMAofEMA)
To calculate the TEMA value, the trader just selects the indicator's timeframe. If we set the period to 5 days, the indicator will generate the EMA using raw price data. Then it will treat the new EMA as if it were a fresh price action graph, and take a second EMA. This second figure is known as the double EMA. In order to compute the indicator's value, a third EMA of the DEMA will be calculated. The TEMA solves the lag issue of conventional exponential moving averages by adding a new term to the calculation. That's right, it's the EMA-of-the-EMA in the formula. The indicator is shifted to the right by subtracting this term from the total of the EMA and the triple EMA multiplied by three.
STRATEGY
TEMA is a powerful instrument that can be used to track long-term trends as well as trade shorter-term moves in a sophisticated trading scheme. It's a trend indicator. Using it in a ranging market where short term changes within the range pattern generate the largest trading opportunities is difficult due to its tendency to smooth out short term aberrations.
Overall, lengthier trends are easier to trade with TEMA. Longer-term trends allow us to disregard volatility and apply the indicator's indications more easily. The indicator loses usefulness as the trend becomes more volatile. You can use it with other oscillators to trade during periods of high volatility, and you can use other instruments to assess volatility individually. Some traders prefer the MACD modified with this indicator (instead of the usual EMAs used to smooth the market).
SUMMARY
The benefits of using the Triple Exponential Moving Average are numerous. It is easier to discern patterns, has no lag, and is used similarly to a simple or exponential moving average. Cons: Too quick to suggest a change in momentum, and its strong signals concerning price action may not always coincide with a straightforward and easy-to-trade market configuration.
The TEMA indicator is used to reduce volatility. TEMA is a priceless tool for traders who want to focus on a long-term, powerful and believable trend with a simple trend following approach. TEMA may not be the best choice in volatile markets, especially if it is not utilised in conjunction with Bollinger Bands or the Standard Deviation tool.
Using the price's moving average smooths out short term swings. But what if we double smooth the market motion with the EMA of the EMA? The new MA would give an even smoother picture of pricing movement, making it easier to discern trends and shifts. The TEMA's genius is in the trailing term added to the formula to deal with delayed signals.
CALCULATION
The formula for calculating the triple exponential moving average is:
TEMA=3xEMAofEMA+ (EMAof EMAofEMA)
To calculate the TEMA value, the trader just selects the indicator's timeframe. If we set the period to 5 days, the indicator will generate the EMA using raw price data. Then it will treat the new EMA as if it were a fresh price action graph, and take a second EMA. This second figure is known as the double EMA. In order to compute the indicator's value, a third EMA of the DEMA will be calculated. The TEMA solves the lag issue of conventional exponential moving averages by adding a new term to the calculation. That's right, it's the EMA-of-the-EMA in the formula. The indicator is shifted to the right by subtracting this term from the total of the EMA and the triple EMA multiplied by three.
STRATEGY
TEMA is a powerful instrument that can be used to track long-term trends as well as trade shorter-term moves in a sophisticated trading scheme. It's a trend indicator. Using it in a ranging market where short term changes within the range pattern generate the largest trading opportunities is difficult due to its tendency to smooth out short term aberrations.
Overall, lengthier trends are easier to trade with TEMA. Longer-term trends allow us to disregard volatility and apply the indicator's indications more easily. The indicator loses usefulness as the trend becomes more volatile. You can use it with other oscillators to trade during periods of high volatility, and you can use other instruments to assess volatility individually. Some traders prefer the MACD modified with this indicator (instead of the usual EMAs used to smooth the market).
SUMMARY
The benefits of using the Triple Exponential Moving Average are numerous. It is easier to discern patterns, has no lag, and is used similarly to a simple or exponential moving average. Cons: Too quick to suggest a change in momentum, and its strong signals concerning price action may not always coincide with a straightforward and easy-to-trade market configuration.
The TEMA indicator is used to reduce volatility. TEMA is a priceless tool for traders who want to focus on a long-term, powerful and believable trend with a simple trend following approach. TEMA may not be the best choice in volatile markets, especially if it is not utilised in conjunction with Bollinger Bands or the Standard Deviation tool.
