Double Exponential Moving Average (DEMA)
Type
Trend follower
Short introduction
DEMA and DEMA2 were introduced in 1994 by Patrick G. Mulloy as modifications of the exponential moving average with the aim of eliminating the lagof the average compared to the smoothed time series. The formation of moving averages generally has the purpose of filtering out the random part of a time series in order to show the main trend movements.
DEMA2, on the other hand, is an extension of DEMA that introduces a second smoothing parameter for the trend.
Formula/calculation
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.
EMA1 = EMAn(S)
EMA2 = EMAn(EMAn(S))
EMA3 = EMAn(EMAn(EMAn(S)))
DEMA = EMA1 + (EMA1 - EMA2) = 2 * EMA1 - EMA2
DEMA2t = * St + (1-) * (DEMA2t-1 + TRt-1)
TRt = * * (St - DEMA2t-1) + (1 - * ) * TRt-1
where
S = time series to be smoothed
n = number of periods for DEMA
= 2/ (a+1), Smoothing factor for DEMA2 for period number a
= 2/ (b+1), smoothing factor for the trend part of DEMA2 for period number b
EMA1 = EMAn(S)
EMA2 = EMAn(EMAn(S))
EMA3 = EMAn(EMAn(EMAn(S)))
DEMA = EMA1 + (EMA1 - EMA2) = 2 * EMA1 - EMA2
DEMA2t = * St + (1-) * (DEMA2t-1 + TRt-1)
TRt = * * (St - DEMA2t-1) + (1 - * ) * TRt-1
where
S = time series to be smoothed
n = number of periods for DEMA
= 2/ (a+1), Smoothing factor for DEMA2 for period number a
= 2/ (b+1), smoothing factor for the trend part of DEMA2 for period number b
Statement/Interpretation
The following literature is recommended for the statement and interpretation of DEMA and DEMA2:
- Mulloy, Patrick G.: Smoothing Data With Faster Moving Averages, Technical Analysis of Stocks & Commodities, 1/1994
- Mulloy, Patrick G: Smoothing Data With Less Lag, Technical Analysis of Stocks & Commodities, 2/1994
- Steven B. Achelis: Technical Analysis from A to Z
- Müller, Thomas and Lindner, Wolfgang: The big book of technical indicators, TM Börsenverlag
Default setting
- none, depending on trend periods
Basic trading systems
- Moving Average Convergence Divergence Indicator (MACD-DEMA)