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49 lines
1.2 KiB
Markdown
49 lines
1.2 KiB
Markdown
# The Math Behind DEMA
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## Components of DEMA
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DEMA is composed of two main components:
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1. Exponential Moving Average (EMA)
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2. A "double smoothing" factor
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Let's break these down:
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### EMA Calculation
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The Exponential Moving Average (EMA) is calculated as:
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$ EMA_t = \alpha \cdot P_t + (1 - \alpha) \cdot EMA_{t-1} $
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Where:
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- $EMA_t$ is the EMA value at time $t$
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- $P_t$ is the price at time $t$
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- $\alpha$ is the smoothing factor, calculated as $\frac{2}{n+1}$
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- $n$ is the number of periods
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### DEMA Formula
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The DEMA is then calculated using the following formula:
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$ DEMA_t = 2 \cdot EMA_t - EMA(EMA_t) $
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Where:
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- $DEMA_t$ is the DEMA value at time $t$
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- $EMA_t$ is the EMA of the price
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- $EMA(EMA_t)$ is the EMA of the EMA
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## Calculation Process
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1. Calculate the EMA of the price series.
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2. Calculate another EMA on the result of step 1.
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3. Multiply the first EMA by 2.
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4. Subtract the second EMA from the result of step 3.
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This process effectively reduces lag while maintaining smoothness.
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## Parameter
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DEMA uses a single parameter:
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- **Period** ($n$): Determines the number of periods used in the EMA calculations. This affects the overall reactivity and smoothness of the indicator.
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