Stocks & Commodities V. 35:09 (8–10, 12): The Reverse EMA Indicator by John F. Ehlers

The Reverse EMA Indicator by John F. Ehlers

The exponential moving average is a popular indicator among technical analysts. But it has its shortcomings. Here’s a look at how the indicator can be used so it results in minimum lag and provides crisper trading signals.

The exponential moving average (EMA) is one of the cornerstones of technical analysis. It is easy to implement and has excellent smoothing qualities over a wide range of applications. The disadvantage of the EMA is that it has different group delay, or lag, across the spectrum of frequencies present in market data. This different lag causes a nonlinear relationship between frequency and phase, leading to waveform distortions. The moving average is computed from left to right across the chart, and some traders have tried to also perform the EMA from right to left, thereby canceling the nonlinear phase response and getting twice the smoothing in the process ...