Triple Exponential Moving Average (TEMA) – What It Is & How to Trade It

Triple Exponential Moving Average (TEMA) – What It Is & How to Trade It

What is the Triple Exponential Moving Average (TEMA)?

The Triple Exponential Moving Average (TEMA) is an advanced version of the Exponential Moving Average (EMA) that reduces lag more effectively than both SMA and DEMA. Developed by Patrick Mulloy, TEMA helps traders identify trend direction with higher accuracy.

TEMA is calculated using the following formula:
TEMA = (3 × EMA(n)) – (3 × EMA(EMA(n))) + EMA(EMA(EMA(n)))

Where:

• EMA(n) = Exponential Moving Average for a given period n.
• The triple smoothing process reduces lag while maintaining trend accuracy.

Key Features of TEMA

• Minimizes lag significantly compared to SMA, EMA, and DEMA.
• Provides smoother trend signals, reducing false entries.
• Works well for short-term and long-term trend analysis.

How to Use TEMA in Forex Trading

1. Trend Identification Strategy

• Bullish Trend: Price is above the TEMA, and TEMA is sloping upward.
• Bearish Trend: Price is below the TEMA, and TEMA is sloping downward.

Recommended TEMA Settings:

• Short-term traders: 10-period TEMA for quick entries.
• Swing traders: 50-period TEMA for trend confirmation.
• Long-term traders: 100-period TEMA to define major trends.

2. TEMA Crossover Strategy

Using multiple TEMA lines of different periods helps generate trade signals:

• Buy Signal: When a short-term TEMA (e.g., 10 TEMA) crosses above a long-term TEMA (e.g., 50 TEMA).
• Sell Signal: When a short-term TEMA crosses below a long-term TEMA.

Best TEMA Combinations:

• 10 TEMA & 50 TEMA: Short-term trading.
• 20 TEMA & 50 TEMA: Swing trading.
• 50 TEMA & 200 TEMA: Long-term trend analysis.

3. TEMA with RSI Strategy

Combining TEMA with RSI (Relative Strength Index) improves signal accuracy:

• Buy when: TEMA indicates an uptrend & RSI is below 30 (oversold).
• Sell when: TEMA indicates a downtrend & RSI is above 70 (overbought).

Pros and Cons of Using TEMA

✅ Pros:

• Faster and more responsive than EMA and DEMA.
• Reduces lag while maintaining smooth trend signals.
• Ideal for trend-following strategies.

❌ Cons:

• Can be too reactive in volatile markets.
• May produce excessive false signals in ranging conditions.

Final Thoughts

The Triple Exponential Moving Average (TEMA) is a highly responsive trend indicator that helps traders reduce lag while maintaining smooth price action. When used correctly, it can enhance trade entries and exits, making it an essential tool for forex traders.