[blackcat] L2 Double EMA Convergence and Diverence (DEMACD)

Introduction:
The " L2 Double EMA Convergence and Divergence (DEMACD)" is a custom technical indicator designed for use in TradingView. It's based on the concept of Double Exponential Moving Averages (DEMA) and incorporates elements from the well-known Moving Average Convergence Divergence (MACD). This guide aims to provide an understanding of its definition, history, calculation, operations, usage, input settings, and style.

1. Definition:
The DEMACD indicator is designed to detect changes in price trends using a modified approach of the traditional MACD, with a focus on reducing lag. It does this by comparing two DEMAs of different lengths, providing traders with signals of converging and diverging trends.

2. History:
The concept of DEMA was introduced by Patrick Mulloy in 1994 to reduce the lag inherent in traditional EMAs. MACD, developed by Gerald Appel in the 1970s, is a trend-following momentum indicator that shows the relationship between two moving averages of a security's price. The DEMACD combines the quick response feature of DEMA with the reliable trend analysis of MACD.

3. Calculation Method:
DEMACD is calculated through several steps:

Smoothed price S is first computed as (3 * close + high + low + open) / 6.
DAYLINE is calculated as 2 * EMA(S, len_ema) - EMA(EMA(S, 5), len_ema).
The mainTrendLine is the EMA of the EMA of the closing price over len_dema periods.
DIF is the difference between the DAYLINE and mainTrendLine.
DEA is the EMA of DIF over len_smooth periods.
Finally, DEMACD is calculated as (DIF - DEA) * 2.
4. Basic Operations and Comparison with MACD:
DEMACD's key feature is its reduced lag compared to the traditional MACD. While MACD uses EMA, DEMACD uses DEMA, providing a faster and more accurate response to price changes. This makes it particularly useful in volatile market conditions where traditional MACD may lag.

5. Usage:
Similar to MACD, DEMACD is used for trend confirmation, crossover signals, and divergences:

Trend confirmation is observed when the DIF line is above or below the DEA line.
Crossover signals are generated when the DIF line crosses the DEA line.
Divergences between the DEMACD and price action can signal potential trend reversals.
6. Input Settings:
Users can configure the following settings in TradingView:

len_ema: Length of the EMA for DAYLINE.
len_dema: Length of the EMA for the main trend line.
len_smooth: Smoothing length for DEA.
Adjusting these settings allows traders to tailor the indicator to different trading styles and market conditions.

7. Style:
The DEMACD in TradingView is represented with different colors and line thicknesses:

DIF is plotted in red with a line thickness of 2.
DEA is plotted in gray, also with a line thickness of 2.
DEMACD histogram changes color based on its value relative to its previous value and zero.
Conclusion:
The " L2 Double EMA Convergence and Divergence (DEMACD)" is a versatile indicator that combines the rapid response of DEMA with the trend-following abilities of MACD. Its reduced lag makes it a valuable tool for traders looking for timely market signals. Proper understanding and application of its settings can enhance its effectiveness in various trading strategies.

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