TEMA: short review
What is TEMA?
If there exists a triple exponential moving average, we could suppose that double and single averages exist too. However, that's not right. A double exponential moving average does exist and is called DEMA, but the single one doesn't. However, there is a classic exponential moving average - EMA. So, the Triple Exponential Moving Average incorporates EMA and DEMA as well so that the value of the successive indicator smoothes the value of the previous one.
How to compute and draw TEMA
Let's start with the TEMA calculation formula: TEMA (i)=3*EMA (i) – 3*EMAofEMA (i) + EMAofEMAofEMA (i).
EMA (i) is here a normal exponential moving average, EMAofEMA (i) is a smoothed exponential moving average of EMA (i), and EMAofEMAofEMA (i) are smoothed exponential moving averages of EMAofEMA (i). Solely the candle closure price is applied when computing the TEMA value. All's easy as a trader doesn't have to do anything: the program computes everything independently. However, it would be good to know how it does that.
Efficiency of TEMA as compared to EMA
Firstly, download the TEMA indicator and install in on MT4. You can easily find ТЕМА on the Internet or you can use my link. Trader may change only one parameter - the period.
We are going to compare 3 indicators: EMA, DEMA and TEMA. It's worth noticing that EMA is an exponential version of the Moving Average.
I highly recommend that you have a closer look at EMA if you are not acquainted with it yet.
So, EMA and other MAs are just variations of the MA indicator. Let's compare 3 values then: EMA, DEMA and TEMA.
You can see the line of price fluctuations and the lines of the 3 indicators on the chart. What's so good about TEMA? It has reacted faster to an upcoming price movement than the other have. The principle of the MA work consists in lagging behind the price. The shorter a lag is the better.
For your information
If you decide to apply moving averages to your trading strategy, remember that a price lag depends directly on the period. The more it is, the more the lag is. However, the indicator is likely to often produce false signals on short periods.
Good trading everyone, my friends!