EURUSD 1.1855 USDJPY 111.60 USDCAD 1.2374 EURCZK 26.028 USDCZK 21.953 EURPLN 4.2728 USDPLN 3.6046
EURUSD 1.1855 USDJPY 111.60 USDCAD 1.2374 EURCZK 26.028 USDCZK 21.953 EURPLN 4.2728 USDPLN 3.6046

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DEMA may react faster to potential trend reversals than the moving averages based upon the standard formula

Rule of thumb

Signals provided by a cross-over of two double exponential moving averages are faster than in the case of typical moving averages, as the DEMA follows the market price with a lower lag

Double Exponential Moving Average (DEMA) is an extension of the simple moving average formula. It has been designed in order to minimise the main problem of the standard moving average formula – time lag. Its formula is based on a combination of single and double exponential moving averages, where “double” means an average of an average.

 

dema, moving average

 

The DEMA line is supposed to be smoother and provide signals faster, as it applies more weight to the most recent observations.

 

The DEMA application is similar as in the case of traditional moving averages. According to one of the methods of interpretation, as long as the prices tend to remain above the DEMA line, the trend is supposed to be ascending. On the other hand an descending trend is identified once the price line falls below the DEMA line.

 

The price line can also be substituted by another short-term DEMA line, and in such a case the signals would be generated by cross-overs of the short-term and long-term DEMA lines.

 

How to use it with MetaTrader 5:

  • Go to Insert - Indicators - Trend - Double Exponential Moving Average
  • Define the period the Double Exponential moving average will be based on, e.g. 14 periods
  • Indicate which price the DEMA will be applied to: close, open, high, low, median price, typical price, weighted close or the previous indicator’s data.
  • The Double Exponential Moving Average will be created automatically by MetaTrader 5 in the same chart.

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