Double Exponential Moving Average (DEMA)
What is DEMA?
The Double Exponential Moving Average (DEMA) is a moving-average variation designed to reduce the lag inherent in traditional moving averages. It reacts faster to recent price changes while still smoothing price action to filter noise, making it useful for traders who want earlier trend signals.
Formula
DEMA is calculated from two exponential moving averages (EMA) of the same look-back period:
DEMA = 2 × EMA(N) − EMA(EMA(N))
where N is the chosen look-back period (e.g., 10, 20, 50).
Explore More Resources
How to calculate DEMA
- Choose a look-back period N.
- Calculate the EMA for that period: EMA(N).
- Calculate an EMA of that EMA: EMA(EMA(N)).
- Combine them:
DEMA = 2 × EMA(N) − EMA(EMA(N)).
Most charting platforms and spreadsheets can compute these steps automatically.
How to read and use DEMA
- If price is above a rising DEMA, it supports an uptrend; if price is below a falling DEMA, it supports a downtrend.
- Crossovers of DEMAs with different periods can generate signals (e.g., buy when a 20-period DEMA crosses above a 50-period DEMA).
- DEMAs can act as dynamic support/resistance, but confirm this role by checking historical behavior on the specific asset.
- Common users: day traders and swing traders who want quicker signals than standard moving averages provide. Long-term investors often prefer longer-period simple or exponential moving averages.
DEMA vs. TEMA
- DEMA uses an EMA and an EMA-of-EMA to reduce lag.
- The Triple Exponential Moving Average (TEMA) incorporates additional EMA layers (EMA of EMA of EMA) and further reduces lag compared with DEMA.
- Less lag can provide earlier signals but may increase sensitivity to short-term fluctuations.
Limitations
- In range-bound or choppy markets, DEMAs produce frequent whipsaws and offer little predictive value.
- Reduced lag can encourage overtrading: more false signals on minor moves.
- Like all technical indicators, DEMA should be used with other tools (price action, volume, or fundamental analysis) to confirm signals.
Quick FAQs
-
What’s the difference between SMA and DEMA?
SMA is a simple average over N periods and lags more; DEMA is a smoothed EMA-based measure that reduces lag for earlier signal detection. -
Which moving average is most accurate?
“Accuracy” depends on timeframe and use. Longer-period averages (e.g., 50-, 100-, 200-period) reduce noise and are generally more reliable for long-term trends; shorter-period DEMAs provide timelier signals for active trading. -
How is DEMA used with MACD?
MACD measures momentum by subtracting a long EMA from a short EMA. Traders sometimes use MACD together with DEMA (instead of a simple EMA) to combine momentum and faster trend signals.
Practical advice
Use DEMA when you want a faster-reacting trend filter, but pair it with other analyses and test settings on historical data for the specific market and timeframe you trade.