Technical trading has been around for decades and it continues to be a popular strategy used by traders of all kinds. But what do traders mean when they talk about technical trading? What is the history behind it, and how has it evolved over the years? In this article, we’ll be exploring the history of technical trading, from the days of Simple Moving Averages (SMA) through Exponential Moving Averages (EMA), Double Exponential Moving Average (DEMA) and Triple Exponential Moving Averages (TEMA), all the way up to the modern T3.
Simple Moving Averages (SMA)
Simple Moving Averages (SMA) are one of the oldest forms of technical analysis. The SMA is calculated by taking the average of a certain number of closing prices over a given period of time, such as the last ten days or the last twenty weeks. This number is then used to show the trader the trend in the market by allowing them to compare the current price with the average.
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Exponential Moving Averages (EMA)
Exponential Moving Average (EMA) is another popular form of technical analysis which focuses on the same premise as simple moving averages, but takes into account volatility of the market. This form of moving average takes the closing prices of the last several periods, and assigns a weight to each period based on its volatility. This weighting then exponentially decreases as the period lengths increase, i.e., more recent prices affect the average more than the older ones.
Double Exponential Moving Average (DEMA)
Double Exponential Moving Averages (DEMA) are technical analysis tools that utilize the exponential moving average formula to reduce the lag time typically seen in traditional moving averages. DEMA is calculated by taking two EMAs of different periods and subtracting them from one another. The resulting DEMA lines are designed to be more responsive to recent price changes and less susceptible to noise and market fluctuations. Traders can use DEMA to identify trends and potential entry and exit points in the market, particularly in volatile markets where sudden price movements are common.
Triple Exponential Moving Averages (TEMA)
The Triple Exponential Moving Averages (TEMA) address the “lag” that can occur when using the exponential moving averages (EMA), as well as sharpen the accuracy of the average. The TEMA is calculated by using three EMA values, each one assigned with a different weight based on its period length. The result of this calculation is a more precise moving average that reacts faster to changes in prices and can a better indicator of possible trend reversals.
T3
The T3 Moving Average developed by Tim Tillson is a relatively new indicator that combines the best of what an EMA and a TEMA have to offer. T3 is designed to provide a smoother, more accurate reading of trends in the market. T3 takes the same three exponential moving average readings as the TEMA and applies a more complex weighting system to their calculations, resulting in an even faster moving average than the EMA, DEMA or TEMA.
Technical trading has come a long way since the days of simple moving averages, and T3 is the latest evolution in this field. This powerful new indicator provides a smoother, more accurate reading of trends and can help traders stay ahead of the market. You can easily make your own indicator or strategy moddings, by replacing a normal MA with a T3. Good luck, if you will experiment with it.
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