The Triple Exponential Moving Average (TEMA)
TEMA can be termed as a technical indicator with a unification of:
“A single exponential moving average”
“A double exponential moving average”
“A triple exponential moving average”
Objective of TEMA:
To smoothen price and other data.
To reduce the slow time (lag) taken by any individual exponential moving averages. It can be applied as a replacement for traditional moving average methodologies or other indicators. It also serves as a momentum indicator, or in other terms (TRIX) which follows “overbought & oversold markets.”
Calculation based on the chart above:
1. EMA = 15- day EMA of the closing price
2. Double EMA = 15 day of the closing price
3. Triple EMA = 15-period day of the closing price
4. TRIX = 15-day in Triple EMA overbought and oversold
Red line - 15 day EMA (follows the price plot closest) Green line - double EMA, Blue line - triple EMA The red line is the most inconsistent of the three lines. It is important for us to observe how these two lines turn flatter as the lag increases.
It can be noticed that, when the triple 15-day EMA is moving down, “TRIX is negative”. And when the triple 15-day EMA raises up, “TRIX is positive.” The up turns & down turns are kept to a minimum by the extra smoothing. In order to reverse a downtrend , it takes more than one-day advance.
TRIX as a Momentum Indicator shows:
When a negative value is demonstrated in an oversold market & positive value is demonstrated in an overbought market. A negative value suggests momentum is decreasing while a positive value suggests increasing momentum.
Suggestions by Analysts:
Purchase signal: When TRIX crosses above the zero line.
Sell Signal: When TRIX closes below the zero line.
Important market turning points can be identified by the difference between “Price & TRIX”
When TRIX is applied as a leading indicator, it is advisable to use it along with another market timing indicator so as to reduce false signals.
For calculating TRIX:
An EMA of the data is taken for a defined period. Then an EMA is taken of that result obtained for the same period. Again, followed by another for the second result. The percent change in value of the third moving average is then returned as the value of the TRIX. At the beginning, of the data series, the value of TRIX is considered to be Zero. As it uses EMA, primary values comprise in its calculation the zero value. It is possible to ignore values before 3 times the period has completed.