Theory:
Welles Wilder had a unique approach to technical analysis, often utilizing a specialized version of the Exponential Moving Average (EMA) that many traders refer to as Wilder's EMA. What sets it apart from the standard EMA is quite intriguing:
Standard EMA formula = price today * K + EMA yesterday * (1-K), where K = 2 / (N+1)
Wilder's EMA formula = price today * K + EMA yesterday * (1-K), where K = 1/N
Here, N represents the number of periods.
Interestingly, despite the differing calculations, Wilder's EMA effectively mirrors the value of the Smoothed Moving Average (SMMA). The Double Smoothed Wilder's EMA takes this concept a step further by applying an additional layer of smoothing. This enhancement makes it more responsive to market fluctuations while still providing smooth output values.
Usage:
This indicator can be utilized just like any standard moving average, allowing traders to identify trends and make informed decisions.
PS:
Check out the comparison between the Double Smoothed Wilder's EMA (the colored line) and the SMMA (the gray line) below:
Comments 0