DEMA (Double Exponential Moving Average) and TEMA (Triple Exponential Moving Average) are advanced moving averages developed by Patrick Mulloy in 1994. They were designed to reduce the lag that plagues traditional moving averages while maintaining a smooth line for trend identification.
Understanding DEMA and TEMA
Both DEMA and TEMA aim to solve the same problem: getting a moving average to respond faster to price changes without becoming too choppy. They achieve this through multiple layers of exponential smoothing combined with lag-reducing calculations.
Key insight: DEMA and TEMA are not simply EMAs applied multiple times. Instead, they use a special formula that subtracts and adds EMAs of EMAs to reduce lag while maintaining smoothness.
DEMA: Double Exponential Moving Average
How DEMA is Calculated
DEMA uses a two-step process that reduces lag compared to a standard EMA:
DEMA Calculation
Step 1: Calculate EMA of price (EMA1)
Step 2: Calculate EMA of EMA1 (EMA2)
Formula: DEMA = (2 x EMA1) - EMA2
Why DEMA is Faster
By multiplying EMA1 by 2 and subtracting EMA2, DEMA essentially:
- Adds extra weight to the first EMA (emphasizing recent prices)
- Subtracts the double-smoothed EMA (removing lag)
- Results in a line that stays closer to current price
TEMA: Triple Exponential Moving Average
How TEMA is Calculated
TEMA extends the DEMA concept with an additional layer of smoothing:
TEMA Calculation
Step 1: Calculate EMA of price (EMA1)
Step 2: Calculate EMA of EMA1 (EMA2)
Step 3: Calculate EMA of EMA2 (EMA3)
Formula: TEMA = (3 x EMA1) - (3 x EMA2) + EMA3
Why TEMA is Even Faster
TEMA's more complex formula results in:
- Even more weight on recent prices through the triple EMA weighting
- Additional lag reduction from the three-level calculation
- The fastest response of the three (EMA, DEMA, TEMA)
Comparing EMA, DEMA, and TEMA
Response Speed
- TEMA: Fastest, hugs price most closely
- DEMA: Faster than EMA, slower than TEMA
- EMA: Slowest of the three
Smoothness
- EMA: Smoothest line
- DEMA: Moderately smooth
- TEMA: Least smooth, can appear choppy
Visual Comparison
On a 20-period setting during an uptrend:
- 20-period EMA: Follows about 3-4% below price peaks
- 20-period DEMA: Follows about 1.5-2% below price peaks
- 20-period TEMA: Follows about 0.5-1% below price peaks
The closer the moving average follows price, the earlier signals occur.
Trading Signals with DEMA and TEMA
Price Crossovers
- Price crosses above DEMA/TEMA: Bullish signal
- Price crosses below DEMA/TEMA: Bearish signal
Direction Changes
- DEMA/TEMA turns up: Momentum shifting bullish
- DEMA/TEMA turns down: Momentum shifting bearish
Moving Average Crossovers
- Faster DEMA/TEMA crosses above slower: Bullish
- Faster DEMA/TEMA crosses below slower: Bearish
DEMA and TEMA Trading Strategies
Strategy 1: DEMA/TEMA Price Crossover
- Apply a 20-period DEMA or TEMA to your chart
- Buy when price closes above the DEMA/TEMA
- Sell when price closes below the DEMA/TEMA
- Use a stop loss at recent swing low/high
Strategy 2: Dual DEMA System
- Apply 9-period DEMA (fast) and 21-period DEMA (slow)
- Buy when fast DEMA crosses above slow DEMA
- Sell when fast DEMA crosses below slow DEMA
- This is a classic trend-following approach
Strategy 3: TEMA for Entry, EMA for Trend
- Use 50-period EMA to determine overall trend
- Use 9-period TEMA for entry timing
- In uptrends (price above 50 EMA), buy when TEMA turns up
- In downtrends (price below 50 EMA), sell when TEMA turns down
Strategy 4: DEMA Pullback Strategy
- Identify strong trends using price structure
- Apply 12-period DEMA
- In uptrends, buy when price pulls back to touch DEMA
- In downtrends, sell when price rallies to touch DEMA
Choosing Between DEMA and TEMA
When to Use DEMA
- When you want faster signals than EMA but not as aggressive as TEMA
- For swing trading on daily charts
- When you need a balance of speed and smoothness
- As a replacement for EMA in existing strategies
When to Use TEMA
- When catching trends early is the priority
- For shorter timeframes and active trading
- When you can tolerate more false signals for earlier entries
- In strongly trending markets
Optimal Settings
Day Trading
- TEMA: 8-12 periods
- DEMA: 12-18 periods
- Use faster settings for quicker timeframes
Swing Trading
- TEMA: 14-21 periods
- DEMA: 20-30 periods
- Balance speed with reliability
Position Trading
- TEMA: 21-30 periods
- DEMA: 30-50 periods
- Focus on major trend changes
Advantages of DEMA and TEMA
- Reduced lag: Faster than standard EMA
- Earlier signals: Catch trends sooner
- Same periods work better: A 20 DEMA/TEMA is more useful than a 20 EMA
- Adaptable: Can replace EMA in any strategy
Limitations of DEMA and TEMA
- More false signals: Speed comes at the cost of reliability
- Overshooting: Can cross price before actual reversals
- Complexity: Harder to understand than simple MAs
- Choppy in ranges: Generates whipsaws during consolidation
Practical Tips
1. Test Before Switching
Before replacing all your EMAs with DEMA or TEMA, backtest to see how the faster signals affect your specific strategy's performance.
2. Adjust for Volatility
In volatile markets, consider using longer periods to reduce whipsaws. In calm markets, shorter periods can capture moves more effectively.
3. Confirm Signals
Because DEMA and TEMA are faster, they can give false signals. Always use additional confirmation like volume, support/resistance, or other indicators.
Track Your Moving Average Performance
Pro Trader Dashboard helps you compare how different moving average strategies perform in your actual trading. See which setups work best for you.
Summary
DEMA and TEMA are powerful alternatives to traditional exponential moving averages. They provide faster signals through their lag-reducing calculations, helping traders catch trends earlier. DEMA offers a moderate speed improvement while TEMA provides the fastest response. Choose based on your trading style and tolerance for false signals.
Want to explore more moving averages? Check out our Hull Moving Average Guide or learn about the Adaptive Moving Average (KAMA).