DEMA stands for dynamic exponential moving average. As the name implies, it’s a fast moving average. It’s an excellent standalone indicator but can also be used in crossover setups. In fact, the DEMA can be used with many indicators, including RSI and MACD. These indicators are based on moving average types. You can modify them to incorporate the faster DEMA into your technical analysis tool. Here are the three ways to use DEMA.
The first way to use a DEMA is to look at the price of a security over a longer period of time. This will reveal a trend’s highs and lows. In addition, the average will show support and resistance levels, which are levels where prices are unlikely to fall. As a result, the DEMA will help you identify when a trend might change. In this way, you can react quickly to changes in prices, which is especially useful for short-term traders.
The second way to use DEMA is to confirm reversal signals. For example, if the SMA and the DEMA are forming a death cross amid heightened selling pressure, this may mean that the price is entering a bearish trend. When the DEMA and the SMA catch up, the trend might already be in its reverse phase. Thus, the DEMA is particularly useful for short-term trend indications.