Double Exponential Moving Average (DEMA)
Double Exponential Moving Average (DEMA) is a smoother and faster Moving average developed with the purpose of reducing the lag time found in traditional moving averages.
DEMA was first time introduced in 1994, in the article "Smoothing Data with Faster Moving Averages" by Patrick G. Mulloy in "Technical Analysis of Stocks & Commodities" magazine.
In this article Mulloy says:
"Moving averages have a detrimental lag time that increases as the moving average length increases. The solution is a modified version of exponential smoothing with less lag time.."
DEMA indicator formula
DEMA default period (t) = 21.
DEMA is not just a double EMA.
DEMA is also not a moving average of a moving average.
It's a combination of a single + double EMA for a lesser lag than either of the original two.
How to trade with DEMA
DEMA can be used instead of traditional moving averages or the formula can be applied to smooth out price data for other indicators, which are based on moving averages.
DEMA can help to spot price reversals faster, comparing to regular EMA.
Such popular trading method as Moving average crossover, will gain a new meaning with DEMA.
Let's compare 2 EMA crossover vs 2 DEMA crossover signals.
DEMA MACD for MT4
Some of Mulloy's original testing of DEMA indicator was done on the MACD, where he discovered that the DEMA-smoothed MACD was faster to respond, and despite producing fewer signals, gave higher results than the regular MACD.
Besides MACD, DEMA smoothing method can be applied to various indicators.
Patrick G. Mulloy says:
"..Implementing this faster version of the EMA in indicators such as the moving average convergence/divergence (MACD), Bollinger bands or TRIX can provide different buy/sell signals that are ahead (that is, lead) and respond faster than those provided by the single EMA.."
Another smoothing method developed by Mulloy is known as TEMA, which is a Triple Exponential Moving Average or, yet another Triple EMA version, developed by Jack Hutson - TRIX indicator.
Trading with ADL involves the following signals:ADL is rising and so does the price — uptrend is healthy.ADL is falling and so does the price — downtrend is healthy.Divergence between ADL and price - changes/pauses in the trend should be expected. Advance Decline Line indicator Advance Decline Line indicator is used in Forex to identify and confirm strength of a trend, as well as its chances for reversing. ADL indicator in Forex provides a comparison between the number of market advancing and declining moments for a given period of time. Advance Decline Line Formula ADL = (N of Advancing Issues — N of Declining Issues) + Previous Period's ADL Value Advance Decline Line chart example The Advance Decline Line is found by measuring the difference between advancing and declining issues for each day. This value (+ or - ) is added to the previous ADL value. How to trade with Advance Decline Line In general, if the market is trading upwards and Advance Decline Line is sloping down (divergence), it suggests that a current trend is losing its strength and may soon reverse. If the market is trending upwards and so does Advanced Decline Line, the situation is stable and the current trend is said to be strong. A divergence that can be seen between price and indicator line is only a warning of possible changes settling. A divergence factor for ADL indicator may last for a long period of time, therefore ADL indicator cannot be used as a timing indicator. Daily ADL is usually used to determine strength and length of short term intra day trends in Forex, while weekly ADL is found to be more useful for trend comparisons over several years.
The indicator is showing relative actual strength of currency XXX. The indicator calculates its value of close prices of 7 pairs containing currency XXX. The indicator can be used for MEAN REVERSION based strategies. Lets assume XXX YYY currency pair scheme where XXX is BASE currency and YYY is QUOTEcurrency. Place Power of XXX into your chart first and Power of YYY second. You can have 2 relevant situations. 1. Indicators curves are close to each other. It means there is higher probability that the price of the pair XXX YYY will go UP.Do not take Power of .. signals separately from overall market situation (SR levels/zones and so on). 2. Indicators curves are FAR from each other. It means there is higher probability that the price of the pair XXX YYY will go DOWN.Do not take Power of .. signals separately from overall market situation (SR levels/zones and so on).
Stochastic RSI basics Stochastic RSI was developed to increase sensitivity and reliability of the regular RSI indicator when it comes to trading off overbought/oversold RSI levels. The authors of the Stochastic RSI indicator - Tushard Chande and Stanley Kroll - explain that often regular RSI indicator would trade in between 20 and 80 levels for extended periods of times without ever reaching an oversold/overbought areas where many traders seek trading opportunities. When combining RSI with Stochastic, a new indicator - Stochastic RSI - provides better and more distinctive signals to trade upon. Let's compare regular RSI and Stochastic with their new improved version - Stochastic RSI: As we can see, unlike other indicators Stochastic RSI was able to reach overbought/oversold levels all the time and even remain there longer before moving in the opposite direction. Let's now take a closer look at the overbought/oversold levels created by Stochastic RSI: How to trade with Stochastic RSI When trading with Stochastic RSI traders look for the following signals: Trading with Stochastic RSI oversold/overbought levels: When StochRSI exits from oversold (below 20) level up - Buy.When StochRSI exits from overbought (above 80) level down - Sell. Notice, that unlike with RSI, where we used 30 and 70 levels as oversold/overbought, here we use 20 and 80, same as for Stochastic indicator. Another point to notice is that we react to indicator signals only after d% line (the thin brown line on the screen shot) has reached overbought/oversold levels as well. If, this line has never entered the overbought/oversold area, any signals to Buy/Sell as StochRSI exits 20 or 80 should be temporarily ignored. 2. Crossover of the center line of StochRSI suggest a current trend.Above 50 level - the trend is up.Below 50 level - the trend is down. These are the two most effective ways to trade with Stoch RSI, the rest, such as divergence trading, for example, would be less effective with this indicator opposed to regular Stochastic and MACD Stochastic RSI formula Stochastic RSI = ((Today's RSI - Lowest RSI Low in %K Periods) / (Highest RSI High in %K Periods - Lowest RSI Low in %K Periods)) * 100 Stochastic RSI measures the value of RSI in relation to its High and Low range over the required period: when a regular RSI reaches a a new Low for the period, Stochastic RSI will be at 0. When RSI records a new high for the period, Stochastic RSI will be at 100.