What is Triple Exponential Moving Average: To analyse market trends, one should be well-appointed with technical wringer tools to make informed decisions well-nigh the price movement of securities.
Here, we shall unravel lanugo the technical wringer with a popular indicator tabbed Triple EMA(Exponential Moving Average). It is derived from the traditional EMA(Exponential Moving Average) to reduce lag and provide increasingly well-judged views on trends, reversals, support and resistance of the Stocks.
We shall go into detail on what is Triple exponential moving stereotype indicator and technical wringer and discuss how to summate its value. And moreover discuss in detail how it can be employed as a trading strategy to find largest entry or exit signals of security.
What is Triple Exponential Moving Stereotype Indicator(TEMA)?
The Triple EMA is a technical wringer indicator used to identify trends hands by smoothing price fluctuations and eliminating the lag associated with trading sessions.
The Triple Exponential Moving Average(TEMA) is a type of moving stereotype based on multiple EMA calculations. It helps to identify trend direction, price reversals and support or resistance levels.
Moving averages are calculated as an stereotype of the past latter price of the security over a specific period. The exponential moving averages(EMA) are calculated by giving increasingly weightage to the recent latter price of the security.
When the price of the security is whilom the Triple EMA it is an uptrend, and when the price of a security is unelevated the Triple EMA then it is a downtrend.
How to summate Triple EMA?
The formula to summate Triple EMA(Exponential Moving Average) is:-
TEMA= (3 x EMA1)-(3xEMA2) EMA3
- TEMA is Triple Exponential Moving Average
- EMA1 is Exponential Moving Average(EMA)
- EMA2 = EMA(EMA1)
- Â Â Â Â Â Â Â Â Â Â EMA3 = EMA(EMA2)
To summate TEMA the period of the indicator should be decided. For example, consider 9day periods
- EMA for a 9-day period is calculated, which is EMA1.
- Now EMA2 is calculated for the same 9-day period as, the EMA of EMA1.
- For EMA3, summate the EMA of EMA2 for the same period as before.
Place the calculated EMA1, EMA2, and EMA3 in the whilom formula for TEMA.
Triple Exponential Moving Stereotype Trading Strategies
We shall discuss various strategies of the TEMA indicator to help traders identify the price momentum of security.
Identifying market trends is very crucial for a trader to go long or short on security, so the Triple EMA indicator helps to spot trends easily.
When the price of a security is trading whilom the Triple EMA indicator, it is said to be an uptrend with bullish momentum.
If the price of a security is trading unelevated the Triple EMA indicator, it is identified as a downtrend with surly momentum.
Below is the orchestration of HDFC Bank showing the trend direction with the Triple EMA indicator.
The signals identified are based on the period set for the Triple EMA indicator, it can be adjusted to any of the periods based on traders’ views and strategies to identify opportunities in the security.
As we have learnt trend directions with the Triple EMA indicator, it moreover helps to identify the trend reversals of the security.
If a security trading whilom the TEMA(Triple Exponential Moving Average) indicator reverses and breaks unelevated the indicator, it is considered a trend reversal from uptrend to downtrend.
And when a security trading unelevated the TEMA(Triple Exponential Moving Average) indicator reverses and breaks whilom the indicator, it is considered a trend reversal from a downtrend to an uptrend.
Traders can moreover goody from the whilom trend reversals to identify largest entry/exit signals of security.
Support and Resistance
The Triple Exponential Moving Average(TEMA) help traders spot support and resistance for security.
When the price of a security is trading whilom the TEMA, the pullback is supported by the indicator. Hence, the Triple EMA acts as a support line for the security to scale in an uptrend.
Below is a orchestration of BankNifty showing the TEMA indicator vicarial as a support to move upwards.
In a downtrend market, the price of the security will trade unelevated the TEMA, the TEMA acts as a resistance line to the security as the price retests the TEMA it builds increasingly momentum towards a downward trend.
Below is a orchestration of Wipro Ltd showing resistance make-believe by the TEMA indicator in a downtrend market.
To make this strategy increasingly reliant choosing a specific period is important based on trader views to have smoothened signals.
Triple EMA Crossover strategy
Another strategy to trade with Triple EMA is the crossover of two TEMAs. Two Triple EMAs of 10-period TEMA as the short period and 50-period as the long period are widow to the orchestration of security.
When the short-term 10-period TEMA crosses whilom the long-term 50-period TEMA, a buy signal is generated.
A sell signal is considered when the short-term TEMA crosses unelevated the long-term 50-period TEMA.
Below is a orchestration of NIFTY 50 showing the Triple EMA crossover strategy.
Limitations of Using the TEMA(Triple Exponential Moving Average)
- TEMA is often useful in trending markets when the price moves in one or the other direction. While in sideways markets, the price becomes rangebound so the TEMA may result in false signals.
- TEMA reacts quickly to the price change, resulting in crossovers for every small price movement, which can impact traders to constantly monitor their positions unless a significant trend transpiration is identified.
- It is a lagging indicator as it depends on historical price data.
- It is useful only for present price movements as it cannot predict future price trends.
Using one type of technical indicator is not largest than another, deciding on the technical wringer tool comes lanugo to one’s experience.
Traders should use the Triple EMA indicator in conjunction with other technical wringer tools like indicators, orchestration patterns, price volume analysis, candlestick patterns, etc to make the weightier entry or exit opportunities in security.
The key points mentioned whilom requite a unenduring knowledge of Triple EMA indicator technical analysis. Traders with this indicator can analyse the security to read trends, reversal, support and resistance levels.
It is well-considered to use other technical tools withal with one indicator to spot the weightier profitable trades.TEMA based on multiple EMA calculations reducing lag time provides a valuable and well-judged guide for market participants to manage the positions with largest risk-to-reward ratios.
Written by Deepak M
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