Triple Exponential Moving Average (TEMA)

The Triple Exponential Moving Average (TEMA) is a trend-following indicator designed to smooth price action while reducing the lag common to traditional moving averages. It achieves this by applying exponential moving averages (EMAs) multiple times and combining them to subtract out some of the lag, producing a line that reacts more quickly to price changes than a simple EMA.

Key points

• TEMA reacts faster to price changes than a single EMA because it subtracts part of the lag inherent in EMA calculations.
• It can help identify trend direction, signal potential trend changes (via crossovers), and act as dynamic support or resistance.
• Shorter lookback periods make TEMA more responsive; longer periods make it smoother and less sensitive to noise.
• TEMA reduces lag more than the Double Exponential Moving Average (DEMA), but it still produces false signals in choppy markets.

Formula and calculation

TEMA = (3 × EMA1) − (3 × EMA2) + EMA3

where:
* EMA1 = EMA of price (chosen lookback period)
* EMA2 = EMA of EMA1 (same lookback)
* EMA3 = EMA of EMA2 (same lookback)

Step-by-step:
1. Choose a lookback period (e.g., 10, 20, 50).
2. Calculate EMA1 for that period on price data.
3. Calculate EMA2 = EMA(EMA1) using the same period.
4. Calculate EMA3 = EMA(EMA2) using the same period.
5. Plug EMA1, EMA2, EMA3 into the formula to get the TEMA.

Interpretation and use

• Trend direction: The slope of the TEMA indicates the averaged short-term trend. An upward slope suggests rising prices; a downward slope suggests falling prices.
• Crossovers: Price crossing above the TEMA can signal a rally or trend start; price crossing below can signal a pullback or trend reversal. Use crossovers with confirmation (volume, price action, other indicators) to reduce false signals.
• Lookback sensitivity: Short lookbacks (e.g., 10) follow price closely and generate more signals; long lookbacks (e.g., 100) smooth more and generate fewer signals.

Support and resistance

TEMA can act as dynamic support in uptrends and resistance in downtrends. Traders often watch for price to pull back to the TEMA and then resume the trend. Verify that the chosen TEMA period has acted as support/resistance historically for the asset before relying on it.

TEMA vs. DEMA

Both TEMA and DEMA aim to reduce EMA lag. DEMA is calculated as:
DEMA = (2 × EMA1) − EMA2
TEMA reduces lag more than DEMA by incorporating an additional EMA term, so it typically reacts quicker and produces slightly different signals.

Limitations

• Not ideal in rangebound or choppy markets — increased whipsaws and false crossovers.
• Faster reaction (reduced lag) can shake out longer-term investors who prefer fewer signals.
• No moving average is inherently superior; choice depends on trading style and strategy.
• Best used alongside price action, other technical indicators, and fundamental analysis for confirmation.

Practical tips

• Test several lookback periods on historical data for the specific asset to find the most reliable setting.
• Combine TEMA with a longer-term trend filter (e.g., a longer SMA) to avoid countertrend trades.
• Use volume, chart patterns, or momentum indicators to confirm TEMA crossovers.

Summary

TEMA is a useful tool for traders who want a smoother moving average with reduced lag. It helps identify short-term trend direction and potential turning points faster than traditional EMAs, but it still requires careful parameter selection and confirmation to avoid false signals in non-trending markets.