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TEMA
Description
TEMA
is a unique smoothing indicator developed by
Patrick Mulloy. It
was originally introduced in the January 1994
issue of Technical
Analysis of Stocks & Commodities magazine.
As
Mr. Mulloy explains in the article:
"Moving
averages have a detrimental lag time that
increases as the moving average length increases.
The solution is a modified version of exponential
smoothing with less lag time."
TEMA
is an acronym that stands for Triple Exponential
Moving Average. However,
the name of this smoothing technique is a bit
misleading in that it is not simply a moving
average of a moving average of a moving average.
It is a unique composite of a single
exponential moving average, a double exponential
moving average, and a triple exponential moving
average that provides less lag than either of the
three components individually.
Interpretation
TEMA
can be used in place of traditional moving
averages. You
can use it to smooth price data or other
indicators. Some
of Mr.
Mulloy's original testing
of TEMA was done on the MACD.
Oddly, he found that the faster
responding TEMA-smoothed MACD produced fewer (yet
more profitable) signals than the traditional
12/26 smoothed- MACD.
A custom indicator named "MACD
(TEMA-smoothed)" is included with MetaStock
Pro.
This
type of smoothing is certainly not limited to the
MACD. You
may want to experiment on other indicators as
well.
Click
here for information on DEMA, a similar
smoothing method developed by Mr. Mulloy. |
