Double Exponential Moving Average technical Indicator (DEMA) was developed by Patrick Mulloy and published in February 1994 in the "Technical Analysis of Stocks & Commodities" magazine.
It is used for smoothing price series and is applied directly on a price chart of a financial security. Besides, it can be used for smoothing values of other indicators.
The advantage of this indicator is that it eliminates false signals at the saw-toothed price movement and allows saving a position at a strong trend.
Double Exponential Moving Average Indicator
**Calculation:
**
This indicator is based on the Exponential Moving Average (EMA). Let's view the error of price deviation from EMA value:
err(i) = Price(i) - EMA(Price, N, i)
where:
- err(i) - current EMA error;
- Price(i) - current price;
- EMA(Price, N, i) - current EMA value of Price series with N period.
Let's add the value of the exponential average error to the value of the exponential moving average of a price and we will receive DEMA:
DEMA(i) = EMA(Price, N, i) + EMA(err, N, i) = EMA(Price, N, i) + EMA(Price - EMA(Price, N, i), N, i) =
= 2 * EMA(Price, N, i) - EMA(Price - EMA(Price, N, i), N, i) = 2 * EMA(Price, N, i) - EMA2(Price, N, i)
where:
- EMA(err, N, i) - current value of the exponential average of error err;
- EMA2(Price, N, i) - current value of the double consequential smoothing of prices.