Triple Exponential Moving Average (TEMA)

Triple Exponential Moving Average (TEMA)

Introduction

The Triple Exponential Moving Average (TEMA) reduces the lag of traditional EMAs, making it more responsive and better-suited for short-term trading. Shortly after developing the Double Exponential Moving Average (DEMA) in 1994, Patrick Mulloy took the concept a step further and created the Triple Exponential Moving Average (TEMA).

Like its predecessor DEMA, the TEMA overlay uses the lag difference between different EMAs to adjust a traditional EMA. However, TEMA's formula uses a triple-smoothed EMA in addition to the single- and double-smoothed EMAs employed in the formula for DEMA. The offset created using these three EMAs produces a moving average that stays even closer to the price bars than DEMA.

Learn More: DEMA

Calculation

Single-, Double-, and Triple-Smoothed EMAs:
  EMA1 = EMA of price
  EMA2 = EMA of EMA1
  EMA3 = EMA of EMA2
TEMA = (3 x EMA1) - (3 x EMA2) + (EMA3)

This calculation adds a triple-smoothed EMA to DEMA's lag adjustment concept, but the formula places extra weight on the EMAs with the least lag.

Interpretation

TEMA is interpreted in a similar way to DEMA and traditional EMAs, but responds even more quickly. It can be used to confirm trends and spot changes in a trend.

The most commonly-used signal is the TEMA crossover. Watch for the TEMA line to cross the price bars, or for a shorter-term TEMA to cross the longer-term TEMA, to indicate a change in trend. For example, a 20-day TEMA crossing above the 50-day TEMA would be a bullish signal.

These TEMA crossovers (whether of price or another TEMA) typically happen much earlier than the corresponding DEMA or traditional EMA crossovers. In the example below, the green arrows mark TEMA crossovers and the blue arrows mark the corresponding EMA crossovers. In both cases, the TEMA crossover happens before the EMA crossover.

Keep in mind that because TEMA reacts more quickly than traditional EMAs, your trading strategies may need to be adjusted for use with TEMA.

Conclusion

Price crossovers and other signals generally occur sooner with TEMA than with DEMA or traditional EMAs. While the reduced lag and greater responsiveness makes TEMA appealing to short-term investors, having some lag helps to filter out noise on the chart. Longer-term investors may prefer a moving average with a little more lag and a little less noise. As with all technical indicators, traders should use TEMA in conjunction with other indicators and analysis techniques.

Charting with the TEMA Overlay

The TEMA overlay can be charted on StockChartsACP after installing our free Advanced Indicator Pack. Please see our StockChartsACP Plug-Ins article in the Support Center for more information on installing this plug-in.

Once the plug-in is installed, the TEMA overlay can be added from the Chart Settings panel for your StockChartsACP chart. TEMA can be overlaid on the security's price plot or on an indicator panel.

By default, the moving average is calculated with 20 periods, but the number of periods can be adjusted to meet your technical analysis needs.

Additional Resources

Stocks & Commodities Magazine Articles

Smoothing Data With Less Lag by Patrick G. Mulloy
Feb 1994 - Stocks & Commodities V.12:2 (72-80)