The TRUTH about TRIPLE EMA you should know (TEMA) - Day Trading Strategies

Is the Triple EMA really better than the normal Exponential Moving Average? The Triple EMA is very similar to the Double Exponential Moving Average, but as the name says, in the double exponential moving average, you use two Exponential Moving Averages, and in the Triple EMA, you use three Exponential Moving Averages to calculate the values. This results in a faster EMA with less lag.

If you plot a normal 200 Exponential Moving Average, a DEMA, and a Triple Exponential Moving Average at the same time. You can obviously guess that the Triple EMA will be the fastest. However, the fastest Exponential Moving Average doesn’t always have to mean better.

For example, when we talked about the Double Exponential Moving Average, we saw that DEMA was actually better when used as an exit indicator because it reacted to the price faster. But compared to DEMA, the Triple EMA sticks way too close to the price, and when used as an exit indicator, the price will cross it multiple times leading to false early exits. In other words, the DEMA is still the sweet spot between not too fast and not too slow.

But then what’s the point of using a Triple Moving Average? If you look at this chart, you will notice that even though Triple EMA was sticking very close to the price in the trend, when the trend was over, or when the price started to reverse, the Triple EMA was far away from the price. Because of this, the main purpose of the Triple Exponential Moving Average is to smooth out the noise like most moving averages, while reacting to price movements with reduced lag. Remember, just because Triple EMA stays near the price, it is not the same as the faster period normal moving average. However, if you remember, in the Double Exponential Moving Average Video I said, that in a trend, you can achieve the same result as DEMA, by simply using a faster period exponential moving average. With the Triple EMA, that’s not the case. However, a shorter period Double Exponential Moving Average looks very similar to a Triple Exponential Moving Average in a trend.

Well, if that’s the case, is Triple EMA special? If you think the normal exponential moving average is special, then yes! But should you use the Triple EMA over a normal Exponential Moving Average? Many traders like to use a 30 period Triple EMA in a strong trend. In an uptrend, they buy when the candle closes above the 30 Triple Exponential Moving Average. But then again, if you add a normal 9-period Exponential Moving Average on the same chart, you will see the normal EMA reacts pretty much the same way in the strong trend, and even gives faster and better entry signals in many cases. The 9 period Exponential Moving Average Strategy is a widely used Trading Strategy, and even I have made money with it in the past. As you can see, in this case, the 9-period normal Exponential Moving Average Strategy gave a way better entry signal than the 30 period Triple EMA Strategy, and many time gives the same or even better exit signals than the 30 period Triple EMA.

As I said, the Triple EMA reduces lag from the normal Exponential Moving Average, but that doesn’t have to mean good. Many times lag on a moving average is better. Since the Weighted Moving Average actually increased the win rate of the Golden Cross Strategy by reacting to the price movement faster, we will test Triple EMA 100 Times in the next video to see if it can perform better than the Weighted Moving Average, by reacting to price even faster.