Double Exponential Moving Average 8-20-63 Strategy

The Double Exponential Moving Average 8-20-63 Strategy tool provides a systematic approach to trend following by utilizing three distinct DEMA periods to identify momentum shifts and execute trades. This script aims to capture trend strength by filtering short-term price action against medium and long-term moving averages to provide clear entry and exit signals.

Usage

The Usage section describes how the script can be used, examples should be provided in this section. This section also focuses on how main settings affect the indicator interpretation and output.

• Long Positions: A long entry is triggered when the shortest DEMA (8) crosses and remains above both the medium (20) and the long (63) DEMA lines. This configuration suggests that short-term momentum is outperforming the longer-term trend.
• Short Positions: A short entry is triggered when the shortest DEMA (8) falls below both the medium (20) and the long (63) DEMA lines. This indicates a bearish shift where short-term price action is weaker than the established trend.
• Strategy Execution: The strategy includes a built-in 0.1% commission to simulate more realistic backtesting results. It continuously maintains a position based on the relative location of the DEMA 1 line compared to DEMA 2 and DEMA 3.

Details

The Double Exponential Moving Average (DEMA) was developed to reduce the lag associated with traditional Exponential Moving Averages (EMAs). It achieves this by calculating a single EMA and a double EMA, then subtracting the latter from twice the value of the former ($DEMA = 2 \times EMA - EMA(EMA)$).

In this specific implementation, the strategy uses three varying lookback periods (8, 20, 63) and different price sources (OHLC4, Low, and Close) for each moving average to create a layered view of market volatility. By requiring the short-term DEMA to clear both longer-term DEMA lines, the script filters out minor price fluctuations that do not result in a sustained trend.

Settings

• Short Length: Sets the period for the fastest DEMA (default is 8). This controls the sensitivity of the primary trend trigger.
• Source Dema 1: Determines the price data used for the first DEMA (default is OHLC4).
• Long Length: Sets the period for the medium-term DEMA (default is 20).
• Source Dema 2: Determines the price data used for the second DEMA (default is Low).
• Long2 Length: Sets the period for the longest-term DEMA (default is 63).
• Source Dema 3: Determines the price data used for the third DEMA (default is Close).

FAQ

How does the DEMA differ from a standard EMA? The DEMA applies a calculation that places more weight on recent price data to significantly reduce the lag found in simple or exponential moving averages, allowing for faster signal generation.

Can I change the sources for the moving averages? Yes, the script allows you to customize the source (Close, Open, High, Low, etc.) for each of the three DEMA lines via the settings menu to better fit specific assets.

How do I access the Double Exponential Moving Average 8-20-63 Strategy? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.