The TMA or Triangular Moving Average indicator calculates the average price of an asset twice over a specified number of price points or price bars. In other words, the TMA is actually a simple moving average of the already averaged price points. Although the calculations are done by the computer program in the background, learning how it is calculated is important to understand how the TMA is calculated and formed.
What is the Triangular Moving Average Indicator?
The TMA line is formed by first calculating a simple moving average of the previous price points. After SMAs of price points are calculated, the average of SMAs is calculated to get TMA values. Here is the equation for calculating the TMA
TMA = Sum of SMA Values ÷ Number of values
The TMA indicator gives more weight to the data points lying in the middle. It can also be calculated using volume or other technical indicators as input data. You can also overlay the TMA indicator on volume or another technical indicator as well. However, it is most commonly applied on price bars.
Because of the double average, the TMA line is smoother than SMA or EMA lines, and it does not react to changing prices as quickly as the SMA or EMA lines.
Triangular Moving Average Strategy
The main purpose of the Triangular Moving Average is to remove the noise and short-term volatility from the price action. This allows traders to differentiate trend reversals from the ranging market. As the TMA is less responsive to price movements, you can expect it to move and change directions only if there is a strong and prolonged price move in any direction.
Most trading platforms have the TMA indicator. However, if your platform does not have the indicator, you can apply an SMA to your chart and then use another SMA line that uses the average of the first SMA line.
The TMA is a lagging indicator, which means that it would give you a signal after the trend has already started. It is advisable that you use it in conjunction with a quicker moving average indicator – an SMA or an EMA. Alternatively, you can consider using multiple TMAs with a different number of period values and use crossover points to pinpoint buy and sell signals.
Buy Signal
- When the smaller value TMA line crosses the default value TMA line from below, it can be considered a buy signal as it shows the possible start of an up trend.
Sell Signal
- When the smaller value TMA line crosses the default value TMA line from above, it can be considered a sell signal as it shows a possible start of a downtrend.
Conclusion
The TMA has its limitations as it does not respond to price changes as quickly as other moving average indicators. If you want to use it to generate buy or sell signals, you should use it along with other quicker moving average indicators that respond much quicker to changes in prices. I would also keep an eye on price action such as key support and resistance levels along with any obvious candlestick patterns that signal in which direction the market is heading.
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