HOW-TO indicate turbulent market : TEMA Channel

Dec 16, 2023

Hey, friends! blackcat is here to bring you an interesting and professional article today, talking about the "Triple Exponential Moving Average (TEMA) Channel" - a powerful tool as a trend indicator in volatile markets.

First of all, let's delve into the origins of the TEMA indicator. It was invented by Patrick Mulloy in the mid-90s with the aim to address the lagging issue encountered when using oscillators or Exponential Moving Averages (EMA). The TEMA indicator smooths out short-term fluctuations by utilizing multiple moving averages. What sets it apart is its unique approach of continuously using the EMA's EMA and adjusting for lag in its formula.

In this article, we will primarily focus on the functionality of the TEMA channel as a trend indicator. However, it's worth noting that its effectiveness is diminished in choppy or sideways markets. Instead, the TEMA indicator shines brightest in long-term trend trading. By utilizing TEMA, analysts can easily filter out and disregard periods of volatility, allowing them to focus on the overall trend.

To gain a comprehensive understanding of market trends, it is often recommended to combine TEMA with other oscillators or technical indicators. This combination can help traders and analysts interpret sharp price movements and assess the level of volatility. For example, some analysts suggest combining the Moving Average Convergence Divergence (MACD) with the TEMA channel to evaluate market trends more accurately.

Now, let's explore how the TEMA channel can be used as a tool to showcase interesting features of price support and resistance. In this script, the TEMA channel is represented by three bands: the upper band, the middle band, and the lower band. The upper band is depicted in white, the middle band in yellow, and the lower band in magenta.

So, let's dive deep into the world of the TEMA channel and enjoy the benefits it brings to understanding market trends. Join us on this exciting journey!

"[blackcat] L1 Triple EMA Channel" requires the overlay parameter set to true. This means that the indicator will be plotted on top of the price chart.

The variable N is defined as an input integer with a default value of 21 and a label "Period". This allows users to change the period value when adding this indicator to their chart.

The variables MAH, MAL, RRANGE, and RANGEMA are calculated using exponential moving averages (EMAs) applied multiple times to either high, low, or range values based on the specified period (N). These calculations help determine upper and lower channel levels for plotting.

The variable UPPER represents the upper channel level by adding twice the RANGEMA value to MAH. It is then plotted using plot() function with parameters like color, linewidth etc.

Similarly, The variable LOWER represents the lower channel level by subtracting twice RANGEMA from MAL. It is also plotted using plot() function with different color than UPPER line.

Finally, The MID variable calculates midpoint between UPPER and LOWER channels by taking their average. It too gets plotted using plot() function but has different color than both UPPER & LOWER lines.