This is one of the fastest moving averages we have seen on the Trading Rush Channel, and when we created a trading strategy based around it and tested it 100 Times, it performed better than both simple and exponential moving averages. Now watch this… This is the Double Exponential Moving Average, and as you can see, it is reacting to the price movement faster than the weighted moving average. Does this mean it will be better and have a higher win rate than Weighted Moving Average?

Well, we will find out when we test this moving average 100 times. In the normal Exponential or Simple moving average, you calculate the average one time, but the Double Exponential Moving Average uses two moving averages just like the name says. This moving average is also known as DEMA and reduces the lag of a normal exponential moving average. If you plot it with some other moving averages, it sure looks less laggy and reacting to price faster. But is a faster moving average really that useful? Can’t we just use a shorter moving average to get the same result? Well, not exactly. The Double Exponential Moving Average is a bit more complicated. In a simple moving average, you calculate the average just like any other simple average. But in the Double Exponential Moving Average, you calculate an EMA first, then use that EMA value to create another EMA, and then you multiply the first EMA two times, and then subtract that value with the Second Exponential Moving Average you calculated earlier. Complicated! And using a shorter simple or exponential moving average won’t give you the same result as you can see on this chart. But at the same time, a 60-period Exponential Moving Average and a 200 period Double Exponential Moving Average are not that far from each other in a trend most of the time. However, there is a clear difference when the trend is reversing. Even though the 60-period exponential moving average is pretty much at the same place as the 200-period moving average, when the price started to move in the opposite direction, the Double Exponential Moving Average did show the trend reversal faster than the shorter period Exponential Moving Average.

In other words, it is better to use the Double Exponential Moving Average to exit your running position at a much better price by finding the trend reversal quicker, because, in the trend, there is not much difference between Double and a shorter Exponential Moving Average. When you are holding a long position, you can exit and book a profit when the price closes below the Double Exponential Moving Average. And you can book a profit on a short position when you see the price crossing and closing above the Double Exponential Moving Average. Unless you are looking to catch smaller strong moves, using a 200-period Double Exponential Moving Average to exit the positions is a good idea. Otherwise, lower Double EMA will stick very close to the price, and the price will cross it more frequently leading to false signals.

Still, we will create a strategy based around it, and we will test it 100 times to see if it performs better and to see if it gets a higher win rate than the Weighted and other Moving Averages we have tested so far. We will do that in the next video, so subscribe to see it! Thanks!