June 24, 2009
The Triple Exponential Moving Average (TEMA) Indicator
As regular readers of this blog will know, I'm a big fan of exponential moving averages. Indeed they are a major component of my main 4 hour trading strategy. However even though they provide more up to date signals than simple moving averages, they are still lagging indicators which is why a man called Patrick Mulloy created the Triple Exponential Moving Average (TEMA) indicator.
The derivation of this particular indicator is quite complicated because it consists of a single exponential moving average, a double exponential moving average and a triple exponential moving average.
However all you really need to know is that this combination of indicators removes a lot of the lagging between indicators and price action. Therefore it is a very effective smoothing indicator.
The default setting for this indicator is 21 but you can adjust it to suit your needs.
As you can see from the chart below (which is the 1 hour chart of the EUR/USD pair) this indicator tracks the price action extremely well and you can make some decent profits by trading close to this TEMA indicator when it is trending strongly upwards or downwards.
However for greater success you may want to combine it with one or two other indicators. For instance a strong buy signal would be when the CCI has crossed through 0, the TEMA indicator is trending upwards and the price has retraced back to this TEMA, and vice versa for a sell signal.
The Triple Exponential Moving Average is not one of the most common technical indicators but it is available via the ProRealTime platform, and if you use Metatrader 4 you should be able to download it from the following page: