Triple Exponential Moving Average (TEMA)

What Is the Triple Exponential Moving Average (TEMA)?

The triple exponential moving average (TEMA) was intended to smooth price changes, consequently making it simpler to recognize trends without the lag associated with traditional moving averages (MA). It does this by taking numerous exponential moving averages (EMA) of the original EMA and deducting out a portion of the lag.

The TEMA is utilized like different MAs. It can help distinguish trend heading, signal potential short-term trend changes or pullbacks, and offer help or resistance. The TEMA can measure up to the double exponential moving average (DEMA).

Formula and Calculation for the TEMA

$\begin &\text{Triple Exponential Moving Average (TEMA)} \ &;;;= \left( 3$EMA_1\right) - \left( 3EMA_2\right) + EMA_3\ &\textbf\ &EMA_1=\text{Exponential Moving Average (EMA)}\ &EMA_2=EMA;\text;EMA_1\ &EMA_3=EMA;\text;EMA_2\ \end

1. Pick a lookback period. This is the number of periods that will be calculated into the primary EMA. With a less number of periods, for example, 10, the EMA will follow price closely and feature short-term trends. With a bigger lookback period, for example, 100, the EMA won't follow price as closely and will feature the longer-term trend.
2. Work out the EMA for the lookback period. This is EMA1.
3. Work out the EMA of EMA1, utilizing the equivalent lookback period. For instance, if involving 15 periods for EMA1, utilize 15 in this step also. This is EMA2.
4. Work out the EMA of EMA2, utilizing the equivalent lookback period as before.
5. Plug EMA1, EMA2, and EMA3 into the TEMA formula to ascertain the triple exponential moving average.

What Does the TEMA Tell You?

The TEMA responds to price changes faster than a traditional MA or EMA will. This is on the grounds that a portion of the lag has been deducted out in the calculation.

A TEMA can be utilized in the same ways as different types of MAs. Mainly, the bearing the TEMA is calculated demonstrates the short-term (averaged) price heading. At the point when the line is inclining up, that means the price is moving up. At the point when it is calculated down, the price is moving down.

There is as yet a small amount of lag in the indicator, so when prices change rapidly the indicator may not change its point right away. Additionally, the bigger the lookback period, the more slow the TEMA will be in changing its point when price changes heading.

The TEMA and Trend Direction

The location of the TEMA relative to the price additionally gives hints with respect to the trend heading. Generally, when the price is over the TEMA it affirms the price is rising for that lookback period. At the point when the price is below the TEMA, it affirms the price is falling for that lookback period.

All things considered, a lookback period ought to be picked so this really turns out as expected more often than not. Accordingly, it depends on the trader to pick the suitable lookback period for the asset they are trading assuming they expect to involve the TEMA for assisting with recognizing trends.

In the event that the TEMA can assist with distinguishing trend heading, then, at that point, it can likewise assist with recognizing trend changes. In the event that the price is over the average, and drops below, that could signal the uptrend is reversing, or possibly that the price is entering a pullback phase. In the event that the price is below the average, and moves above it, that signals the price is mobilizing. Such crossover signals may be utilized to aid in choosing whether to enter or exit positions.

The TEMA for Support and Resistance

The TEMA may likewise offer help or resistance at the cost. For instance, when the price is rising overall, on pullbacks it may drop to the TEMA, and afterward the price may seem to bounce off of it and keep rising. This movement is dependent upon the legitimate lookback period for the asset. In the event that involving the TEMA for this purpose, it ought to have proactively offered help and resistance in the past. On the off chance that the indicator didn't offer help or resistance in the past, it most likely won't from here on out.

At long last, a few traders utilize the TEMA, ordinarily with a small lookback period, as an alternative to price itself. The single line sift through a significant part of the noise on traditional candlestick or bar charts. A line chart would likewise work in such manner.

The TEMA versus the Double Exponential Moving Average (DEMA)

Both these indicators are intended to reduce the lag inherent in average-based indicators. The TEMA reduces lag more than the double exponential moving average (DEMA).

The formula for the DEMA is unique, and that means it will give the trader marginally unique information and signals. It is calculated by duplicating the EMA of price by two and afterward deducting an EMA of the original EMA.

Limitations of Using the TEMA

While the TEMA reduces lag, it actually inherits a portion of the traditional issues of different MAs. MAs are primarily helpful in trending markets, when the price is making supported moves in a single heading or the other. During choppy times, when the price is wavering to and fro, the MA or TEMA may give little understanding and will create false signals since crossovers may not bring about a supported move as long as the price stays rangebound.

Reduced lag may benefit a few traders, yet not others. A few traders favor their indicators to lag since they don't need their indicator responding to each price change. Since the TEMA responds faster to price changes, it will follow the price more closely than a simple moving average (SMA), for instance. However, that likewise means that the price may cross the TEMA on a smaller price move than what is required to cross the SMA. Investors commonly don't have any desire to actively trade, so they don't wish to be shaken out of positions except if there is a critical trend change.

One type of MA isn't better than another. Choosing which to utilize boils down to personal preference and what turns out best for the strategy somebody is utilizing.

The TEMA is best utilized related to different forms of analysis, for example, price action analysis, other technical indicators, and fundamental analysis.

Illustration of the TEMA

Here is an illustration of a TEMA applied to the SPDR S&P 500 ETF.

The TEMA smooths out the price action. The point of the TEMA distinguishes the overall trend bearing even during the everyday noise of minor price changes.

Features

• The triple exponential moving average (TEMA) utilizes numerous EMA calculations and deducts out the lag to make a trend following indicator that responds rapidly to price changes.
• The TEMA can assist with distinguishing trend course, signal potential short-term trend changes or pullbacks, and offer help or resistance.
• At the point when the price is over the TEMA it affirms an uptrend; when the price is below the TEMA it affirms a downtrend.