PostHeaderIcon Understanding Double Exponential Moving Averages

Trading has become quite complex and scientific with the use of technical analysis. But then, such tools have made it easier for traders to better understand the market and take value of the indicators that are presented to them. Using such tools like the double exponential moving average or DEMA.

What is DEMA?

In technical analysis, there are different types of moving averages being employed to help traders determine future movements in the market. In simple terms, a moving average refers to the average price of a trading instrument over a specified period of time. Although they might indicate average price movement, a typical problem with moving averages is that there tend to be a serious lag in them.

In order to reduce the amount of lag, the double exponential moving average was developed by Patrick Mulloy and was introduced in 1994. it is somewhat a combination of a single exponential moving average and a double exponential moving average that provides lesser lag time than that being provided by either one of the two components in their separate form.

DEMA Vs. Traditional Moving Averages

One of the uses for moving averages in technical analysis is that they help traders spot trend reversals. This can provide an idea about buying or selling opportunities for traders. In this case, the advantage of a DEMA is that it can help traders spot the reversals sooner since it responds faster to changes than the traditional moving averages. In short, a DEMA as an indicator is considered as more quicker and more responsive as compared to the traditional moving average.


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