DEMA (Double Exponential Moving Average)

The Double Exponential Moving Average (DEMA) was developed by Patrick Mulloy to reduce the lag inherent in traditional moving averages. It is calculated as 2 times the EMA minus the EMA of the EMA. This double-smoothing technique makes DEMA more responsive to recent price changes than a standard EMA.

How DEMA Is Used in Trading

DEMA is primarily used as a faster alternative to EMA in crossover systems. When a short-period DEMA crosses above a long-period DEMA, it generates a buy signal with less lag than a standard moving average crossover. This speed advantage is particularly valuable in fast-moving markets.

Traders also use DEMA as dynamic support and resistance. Price trending above DEMA suggests bullish conditions, while price below DEMA suggests bearish conditions. The reduced lag means DEMA adapts to trend changes faster than traditional moving averages.

In algorithmic trading, DEMA is often substituted for EMA in classic strategies like the MACD. A DEMA-based MACD produces earlier signals, which can be advantageous for scalping and day trading strategies where every bar of lag matters.

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