Posted in Finance, Accounting and Economics Terms, Total Reads: 434
Definition: Double Exponential Moving Average - DEMA
Double Exponential Moving Average (DEMA) was developed by Patrick Mulloy and first published in Technical Analysis of Stocks & Commodities in February 1994. Moving averages have been used as a technical tool by analysts and traders for years. However, it has a considerable lag due to its simple averaging method.
Traditional moving averages are average of the historic prices over a perticular time period like 10 days or 200 days. Moving averages are used by traders to identify entry and exit points in trades to get maximum returns. However, they constitute a lag with them as they are slow to respond to changes in recent market activities. DEMA is swift in responding to market condition changes and thus helps to minimize the lag. Two different length DEMA are plotted on a chart and the points of intersection are the entry or exit points in a trade i.e. buying or selling points.
DEMA is caculated using both single exponential moving average and double exponential moving averagre. Most of the trading platforms provide DEMA as an indicator, hence traders can use it without knowing the math and calcuation behind it or having to code by themselves.