What is dema & how does it work?

In 1994, Patrick Mulloy introduced this variation on the moving average in an article, "Smoothing Data With Faster Moving Averages," in the Technical Analysis of Stocks & Commodities magazine. DEMA minimizes lag in moving averages, offering a more responsive indicator for traders to identify trends and reversals in asset prices.

Should you use a Dema or a traditional EMA?

Price crossovers and other signals generally occur sooner with DEMA than with traditional EMAs. The reduced lag and greater responsiveness of DEMA appeal to short-term investors, but long-term investors may find traditional moving averages more useful.

What is the difference between a Dema and a moving average?

Let us look at the differences when the number of days for the DEMA is changed: The black line is the 50-day DEMA, detached from the stock prices, compared to the green line, which is the 9-day DEMA. The moving averages are dependent on the last data point.