Double Exponential Moving Average is a technical indicator devised to reduce the result lags arising from a traditional moving average. This aspect makes it more responsive and well-suited for short-term traders. Traders use it to identify a potential uptrend or downtrend in the price of a stock.
In This Article
What is the Double Exponential Moving Average?
How To Analyse Chart Using DEMA
Category
Trend
Type
Lagging
DEMA are an enhancement over Exponential Moving Average (EMA) as they allocate more weight to the latest data points. Developed by Patrick Mulloy, traders use this indicator to lessen the amount of noise that could contort the movement on a chart.
It is used to indicate the trend in the price movements of an asset, like other moving averages. DEMA is not so reliable when used to show potential resistance and support points. However, they react quicker than traditional moving averages. Thus, their users are likelier to be swing traders or day traders.
The Double Exponential Moving Average is interpreted like other MAs. When the price of an asset is below DEMA, it helps confirm a downtrend. Conversely, when DEMA is above the price of an asset, it helps confirm an uptrend.
DEMA crossover is one of the most commonly used signals. A trend change occurs when a shorter DEMA crosses a longer DEMA.
For instance, the 22-day EMA crossing above the 45-day EMA would be a bullish signal. So, traders can buy in this situation.
When the same 22-day EMA crosses back below the 45-day EMA, it is a signal to sell. Such DEMA crossovers occur much earlier than the corresponding EMA crossovers.