Double Exponential Moving Average
Type
Other indicator
Short introduction
The Double Exponential Moving Average ("DEMA") was introduced in 1994 by Patrick G. Mulloy as a modification of the Exponential Moving Average (EMA) with the aim of eliminating the time lagof the average compared to the smoothed time series. The purpose of moving averages is generally to filter out the random percentage over a time series in order to identify the main trend movements.
(The variant "DEMA2" is in turn an extension of DEMA that introduces a second smoothing parameter for the trend.)
Statement
DEMA and DEMA2 are linear combinations of single, double and triple exponential averages. The double and triple averages are used to estimate the trend-related correction.
Formula/calculation
EMA1 = EMAn(S)
EMA2 = EMAn(EMAn(S))
EMA3 = EMAn(EMAn(EMAn(S)))
DEMA = EMA1 + (EMA1 – EMA2)
= 2 × EMA1 – EMA2
where:
S = Time series to be smoothed
n = Period number for DEMA
Interpretation
The DEMA supports traders in the early detection of a trend reversal. In practice, the indicator is used in combination with the MACD and Triple Exponential Moving Average.
In a "MACD-DEMA" trading system, for example, the principle of linear combination of its exponential averages from DEMA could be applied to the MACD in its default setting (12/26/9). This trading system provides buy signals when the indicator breaches its trigger from the bottom up, and sell signals when it breaches its trigger from the bottom down.
Default setting
- MA period: 9 periods
Example: DEMA
