Traders have relied on moving averages to help pinpoint high-probability trading entr🐼y points and profitable exits for many years.

A well-known problem with moving averages, however, is the serious lag that is present in most types of moving averages. The 澳洲幸运5开奖号码历史查询:double exponential moving average, or DEMA, provides a solut♊ion by calculating a faster averaging methodology.

In 澳洲幸运5开奖号码历史查询:technical analysis, the term moving average refers to✃ an ave🔴rage price for a particular trading instrument over a specified time period.

For example, a 10-day moving average calculates the average price of a specific instrument over the past 10 days, a 200-day moving average calculates the average price of the last 200 days, and so on. Each day, the look-back period advances to base c꧂alculations on the last X number of days.

History of the Double Exponen💫tial Moving Average

A moving average appears as a smooth, curving line that provides a visual representꦡation🐈 of the longer-term trend of an instrument.

Faster moving averages, with shorter look-back periods, are choppier; slower moving averages, with longer look-back periods, are smoother. Because a moving average is a backward-looking indicator, it is described as lagging.

The double exponential moving average (DEMA), shown in Figure 1, was developed by Patrick Mulloy in an attempt to reduce the amount of lag time found in traditional moving averages. It was first introduced in the February 1994 issue of the magazine Technical Analysis of Stocks & Commodities in Mulloy's article "Smoothing Data with Faster Moving Averages."

Calculating a DEMA

As Mulloy explains in his original article, "the DEMA is not just a double EMA with twice the lag time of a single EMA, but is a composite implementation of single and double EMAs producing anot🤪her EMA with less lag than either of the original two."

In other words, the DEMA is not simply two EMAs combined or a moving average of a moving average, but it is a calculation of both single an𝐆d double EMAs.

Nearly all trading analysis platforms have the DEMA included as an indicator that can be added to charts. Therefore, traders can use the DEMA withoutꦐ knowing the math behind the calculations and without having to write or input any code.

𝓰 Comparing the DEMA ♔With Traditional Moving Averages

Moving averages are one of the most popular methods of technical analysis. Many traders use them to spot trend 澳洲幸运5开奖号码历史查询:reversals, especially in a moving average 澳洲幸运5开奖号码历史查询:crossover, where two moving averages of different lengths are placed on a chart. Points where the movi💮ng averages cross can signify buying or selling opportunities.

The DEMA can help traders spot reversals sooner because it is faster to respond to changes in market activity. Figure 2 shows an example of the e-mini Russell 2000 澳洲幸运5开奖号码历史查询:futures contract. This one-minute charꦕt has four moving averagesꦏ applied:

• 21-period DEMA (pink)
• 55-period DEMA (dark blue)
• 21-period MA (light blue)
• 55-period MA (light green)

The first DEMA crossover appears at 12:29, and the next bar opens at a price of $663.20. The MA crossover, on the other hand, forms at 12:34, and the next bar's opening price is $660.50. In the next set of crossovers, the DEMA crossover appears at 1:33, and the next bar opens at $658.

The MA, in contrast, forms at 1:43, with the next bar opening at $662.90. In each instance, the DEMA crossover provides an advantage in getting into the trend earlier than the MA🉐 crossover.

Trading With a DEMA

Th🀅e above moving average crossover examples illustrate the effectiveness of using the faster DEMA. In addition to using the DEMA as a standalone indicator or in a crossover setup, the DEMA can be used in a variety of indicators in which the logic is based on a moving average.

Technical analysis tools such as 澳洲幸运5开奖号码历史查询✱:moving average convergence divergence (MACD) and 澳洲幸运5开奖号码历史查询:triple exponential moving average (TRIX) are based on moving average types and can be modified to incorporate a DEMA in place of other m🃏ore traditional types of moving averages.

Substituting the DEMA can help traders spot different buying and selling opportunities that are ahead of those provided by the MAs or EMAs traditionally used in these indicators. Of course, getting into a trend sooner 💦rather than late✅r typically leads to higher profits.

Figure 2 illustrates this principle—if we wer🔯e to use the crossovers as buy and sell signal🦂s, we would enter the trades significantly earlier when using the DEMA crossover as opposed to the MA crossover.

The Bottom Line

Traders and investors have long used moving averages in their market analysis. Moving averages are a widely used technical analysis tool th🍸at provides a means of quickly viewing and interpreting the longer-term trend of a given trading instrument.

Since moving averages by their very nature are lagging indicators, it is helpful to tweak the moving average in order to🤪 calculate a quic✅ker, more responsive indicator. The DEMA provides traders and investors a view of the longer-term trend, with the added advantage of being a faster-moving average with less lag time.