Triple Exponential Moving Average (TEMA)
Candlefocus EditorUnlike simple and exponential moving averages, the TEMA improves upon the single EMA by taking into account more of the past data points over a given period of time. The TEMA uses a weighted average of the current price, the previous price and two more EMA calculations of the past price. The net effect of the TEMA’s multiple calculations of the past price is a smoother to react indicator with less lag than a simple or single exponential moving average.
The TEMA is typically used to identify trend direction, potential short-term trend changes or pullbacks, and as potential support or resistance levels. When the price is above the TEMA, it is an indication of a strong up trend; when the price is below the TEMA, it is an indication of a strong down trend. When the price is swinging between the TEMA and its levels of support or resistance, it can signal potential short-term trend reversals or pullbacks that traders may look to exploit.
The TEMA can also be used to identify directional price momentum by looking for crossovers. A bullish crossover occurs when the TEMA turns upwards and crosses the price from below, indicating that the current trend is likely to continue in the same direction. A bearish crossover occurs when the TEMA turns downwards and crosses the price from above, signaling that the current trend could reverse in the near future.
Overall, the triple exponential moving average combines the lag reducing benefits of the exponential moving average with the smoother to react properties of its multiple calculations to create a responsive and accurate trend following indicator. It can be used to identify trend direction, potential short-term trend changes or pullbacks, and is a valuable technical tool for traders looking to exploit market opportunities.