Double Exponential Moving Average (DEMA)
The Speedy, Smooth Trend Tracker That Cuts the Lag
Back in 1994, Patrick Mulloy dropped a clever upgrade on the trading world in Technical Analysis of Stocks & Commodities magazine. His creation? The Double Exponential Moving Average (DEMA) – basically an EMA on steroids. It keeps the nice smoothness traders love while slashing that annoying delay that makes you miss the party when prices start moving fast. Think of it as the EMA's quicker, sharper cousin who shows up on time.
How It's Built – The Math Without the Headache
Here's the recipe in plain English:
- Pₜ = the price (usually closing price) at time t
- EMA₁ₜ = regular Exponential Moving Average of the price with period n
- EMA₂ₜ = EMA of the EMA₁ (yes, an EMA of an EMA - same period n)
The magic formula for DEMA is: DEMAₜ = 2 * EMA₁ₜ - EMA₂ₜ
That subtraction cleverly cancels out a big chunk of the lag baked into a single EMA. Because you're smoothing twice, you'll need roughly 2xn - 1 data points before DEMA spits out its first reliable value – patience required!
The smoothing factor (alpha) for both EMAs is the classic 2 / (n + 1) - nothing fancy changes there.
What Makes DEMA Special
DEMA shines in two big ways:
- Responsiveness: It hugs price action much tighter than a regular EMA of the same length - fewer "oops, I missed the move" moments.
- Smoothness: Double smoothing keeps the wild noise in check better than just plotting raw prices or super-short averages.
- Downside: It's a bit hungrier for historical data to get going.
Result? A line that's quick on its feet but doesn't jitter like a caffeinated squirrel.
Picking the Right Period - Because One Size Doesn't Fit All
The period n changes DEMA's personality dramatically:
- Fast & nimble (5-10): Great for swing trading or quick scalps, think zippy entries and exits.
- Balanced swing (18-30): Solid all-rounder for most charts.
- Long-term trend (50-100): Acts like dynamic support/resistance on daily or weekly timeframes.
Short periods = more signals (and more potential fake-outs). Long periods = fewer, cleaner signals. Choose based on your style and the market's mood.
Real-World Trading Ideas (With Simple Rules)
Here are battle-tested ways traders use DEMA:
- Trend filter: Only go long when price is above DEMA(n), short when below. Flip sides on a crossover.
- Dual crossover system: Fast DEMA(10) crossing above slow DEMA(30) = buy signal. Reverse for sell. Classic momentum play.
- Pullback hunter: In a strong uptrend, wait for price to dip below DEMA(20), then buy the first close back above it. Stop below the recent swing low.
- Trailing stop with flair: Trail your stop at DEMA(50) ± a multiple of ATR(14) locks in profits while giving the trend room to breathe.
These are starting points - always add your own filters (volume, higher timeframe, etc.) to avoid getting chopped in sideways markets.
The Good, the Bad, and the Whipsaw
Strengths
- Faster reaction than a same-length EMA without turning into a nervous wreck.
- Super versatile , trend line, crossover star, or dynamic stop.
- Built into most charting platforms and coding libraries, no need to reinvent the wheel.
Limitations & Gotchas
- Can still get overly twitchy in crazy volatile markets, premature exits galore.
- A touch more complex than plain SMA or EMA, beginners might need a minute to wrap their head around it.
- Needs more historical data to kick off reliably.
Your DEMA Deployment Checklist
- Define your goal: scalping (n≈8), swing (n≈21), or longer position trading (n≥55).
- Check the bigger picture - make sure DEMA aligns with higher-timeframe trend or a momentum oscillator.
- Set clear risk - place stops beyond recent structure or using DEMA ± k*ATR.
- Backtest it! Tweak n until you find the sweet spot between responsiveness and noise.
Key Takeaways
DEMA gives you the smoothness of an EMA with way less lag, perfect when timing matters.
It reacts faster than a single EMA but stays calmer than super-short averages.
Great as a standalone trend line, crossover system, or trailing stop tool.
Tune the period to your trading style and always, always manage risk like it's your best friend.
Test it thoroughly - a well-tuned DEMA can help you catch turns earlier and ride trends tighter. Happy charting!
Double Exponential Moving Average (DEMA)
The Speedy, Smooth Trend Tracker That Cuts the Lag
Back in 1994, Patrick Mulloy dropped a clever upgrade on the trading world in Technical Analysis of Stocks & Commodities magazine. His creation? The Double Exponential Moving Average (DEMA) – basically an EMA on steroids. It keeps the nice smoothness traders love while slashing that annoying delay that makes you miss the party when prices start moving fast. Think of it as the EMA's quicker, sharper cousin who shows up on time.
Table of Contents
How It's Built – The Math Without the Headache
Here's the recipe in plain English:
- Pₜ = the price (usually closing price) at time t
- EMA₁ₜ = regular Exponential Moving Average of the price with period n
- EMA₂ₜ = EMA of the EMA₁ (yes, an EMA of an EMA - same period n)
The magic formula for DEMA is: DEMAₜ = 2 * EMA₁ₜ - EMA₂ₜ
That subtraction cleverly cancels out a big chunk of the lag baked into a single EMA. Because you're smoothing twice, you'll need roughly 2xn - 1 data points before DEMA spits out its first reliable value – patience required!
The smoothing factor (alpha) for both EMAs is the classic 2 / (n + 1) - nothing fancy changes there.
What Makes DEMA Special
DEMA shines in two big ways:
- Responsiveness: It hugs price action much tighter than a regular EMA of the same length - fewer "oops, I missed the move" moments.
- Smoothness: Double smoothing keeps the wild noise in check better than just plotting raw prices or super-short averages.
- Downside: It's a bit hungrier for historical data to get going.
Result? A line that's quick on its feet but doesn't jitter like a caffeinated squirrel.
Picking the Right Period - Because One Size Doesn't Fit All
The period n changes DEMA's personality dramatically:
- Fast & nimble (5-10): Great for swing trading or quick scalps, think zippy entries and exits.
- Balanced swing (18-30): Solid all-rounder for most charts.
- Long-term trend (50-100): Acts like dynamic support/resistance on daily or weekly timeframes.
Short periods = more signals (and more potential fake-outs). Long periods = fewer, cleaner signals. Choose based on your style and the market's mood.
Real-World Trading Ideas (With Simple Rules)
Here are battle-tested ways traders use DEMA:
- Trend filter: Only go long when price is above DEMA(n), short when below. Flip sides on a crossover.
- Dual crossover system: Fast DEMA(10) crossing above slow DEMA(30) = buy signal. Reverse for sell. Classic momentum play.
- Pullback hunter: In a strong uptrend, wait for price to dip below DEMA(20), then buy the first close back above it. Stop below the recent swing low.
- Trailing stop with flair: Trail your stop at DEMA(50) ± a multiple of ATR(14) locks in profits while giving the trend room to breathe.
These are starting points - always add your own filters (volume, higher timeframe, etc.) to avoid getting chopped in sideways markets.
The Good, the Bad, and the Whipsaw
Strengths
- Faster reaction than a same-length EMA without turning into a nervous wreck.
- Super versatile , trend line, crossover star, or dynamic stop.
- Built into most charting platforms and coding libraries, no need to reinvent the wheel.
Limitations & Gotchas
- Can still get overly twitchy in crazy volatile markets, premature exits galore.
- A touch more complex than plain SMA or EMA, beginners might need a minute to wrap their head around it.
- Needs more historical data to kick off reliably.
Your DEMA Deployment Checklist
- Define your goal: scalping (n≈8), swing (n≈21), or longer position trading (n≥55).
- Check the bigger picture - make sure DEMA aligns with higher-timeframe trend or a momentum oscillator.
- Set clear risk - place stops beyond recent structure or using DEMA ± k*ATR.
- Backtest it! Tweak n until you find the sweet spot between responsiveness and noise.
Key Takeaways
DEMA gives you the smoothness of an EMA with way less lag, perfect when timing matters.
It reacts faster than a single EMA but stays calmer than super-short averages.
Great as a standalone trend line, crossover system, or trailing stop tool.
Tune the period to your trading style and always, always manage risk like it's your best friend.
Test it thoroughly - a well-tuned DEMA can help you catch turns earlier and ride trends tighter. Happy charting!
Related Terms
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