Introduction to Technical Analysis
In recent years, the use of technical analysis as a method of predicting the market has been on the rise. Before that, fundamental analysis was utilized by and large by the trading community. However, there was a realization that fundamental analysis has some inherent shortcomings that might end up causing huge losses for the trader. To identify the high probability entry opportunities, technical analysis employs the use of double exponential moving averages.
The Effectiveness of Double Exponential Moving Averages
There are various reasons why the strategy has become very popular among traders. First and foremost, the strategy is faster in comparison to the other indicators. This means that a trader will get accurate entry points. Having such an edge will make thousands of dollars for the trader in the market. To attain profitability, the trader has to have a hang of the right time to exit, and enter. The ability of the indicator to reduce noise in the market has endeared it to many traders. Moreover, the strategy is very reactive to the changes in the market. This means that the trader will have the ability to predict the impending changes in the market.
The Best Way to Use DEMA
There are many traders who prefer using DEMA as a standalone indicator. However, there are also a big number of traders who prefer to use the strategy in combination with other strategies of technical analysis. When there are other confirming indicators, there are high chances that the prices will move in a particular direction.
The Unique Attributes of the DEMA
The indicator is very effective in creating trend lines for the trader. Trend lines are an important arsenal since prices obey them for most of the times. The indicator is also liked due to its ability to avail a visual aid that can be easily interpreted. Analyzing the price charts will become easier when double exponential moving averages are used. The main function of the moving average is to present the mean prices over a particular period of time. For instance, there is the 10-day moving average which might be use to determine how the prices have been over the last ten days. There is also the 200 day moving average which calculates the mean of a particular stock over the last two hundred days.
Comparison of DEMA with Traditional Moving Averages
Since its inception, the indicator has been able to overcome most of the challenges found in the traditional moving averages. The major disadvantage of the traditional methods of technical analysis is that they have a lot of lag time. When the lag time is too high, it become impossible for the trader to establish the direction where the prices are likely to move to. The ability to smooth data is crucial and will usually lead to improved trading results.
The Brokers That Have Integrated DEMA in Their Platforms
Most brokers today have integrated the indicator into their trading platforms. This implies that a trader does not have to purchase one in order to trade. For instance, the AlfaTrade platform has adopted the indicator to improve the results of their traders. To use it, it is not a must for the trader to understand the math behind its calculations.
Moreover, one does not have to write any codes for it to function. This means that anyone can use the indicator with some minimal training. A crossover between the various moving averages is the best indication that the prices are just about to change. The trader should always consider taking his profits when a high has been reached in the market. Conversely, entering a position is the most advisable thing to do when a low has been reached.