Introduction to the TMA Indicator
Moving average lines have characteristics which is within a spectrum of being sensitive and erratic or smoothened and reliable. The TMA line is a smoothened type of moving average line, which allows it to be a very reliable trend direction indicator.
What is the TMA Indicator?
The TMA Indicator, also known as the Triangular Moving Average, is a trend following technical indicator which is another method for calculating a moving average line. This version of the moving average is technically a double smoothed moving average based on its formula. It plots a very smooth line which works well for identifying trend direction based on where price action is in relation to its moving average line, as well as the slope of its moving average line.
How the TMA Indicator Works?
The Triangular Moving Average Indicator uses a very simple formula within its algorithm, which technically calculates for the average price movement twice. It first calculates for the average price in a similar fashion as a Simple Moving Average (SMA). Then, it calculates for the average of the SMAs within the time window selected by the user.
Its formula is as follows:
1ST Step:
SMA = (Price 1 + Price 2 + Price 3 + Price 4 + … + Price n) / n periods
TMA = (SMA 1 + SMA 2 + SMA 3 + SMA 4 + … + SMA n) / n periods
This indicator then plots the resulting TMA points in a chronological order which forms a moving average line that smoothly follows the movements of price action.
How to use the TMA Indicator for MT4
The TMA Indicator has a couple of options within its indicator settings which traders may use to modify the characteristics of the TMA line.
“Periods” refers to the number of bars or periods which the indicator would use to calculate for the TMA line. This variable is the main variable used for modifying the sensitivity of the TMA line.
“Apply to” refers to the price point on a candle which the indicator would use for its calculations. Although the TMA line uses the close price as a standard, this version allows users to modify this input. Below are the options and its corresponding price points:
- 0 – Close
- 1 – Open
- 2 – High
- 3 – Low
- 4 – Median Price (HL/2)
- 5 – Typical Price (HLC/3)
- 6 – Weighted Close (HLCC/4)
The TMA line can be used as a trend direction filter, wherein traders would identify trend direction based on where price action generally is in relation to the TMA line, as well as the slope of the line.
It can also be used as a trend reversal signal indicator based on the crossing over of price and the TMA line. However, this should be used in confluence with other technical indications.
Buy Trade Setup
When to Enter?
Open a buy order as soon as a bullish momentum candle closes above the TMA line.
When to Exit?
Close the trade as soon as price closes below the TMA line.
Sell Trade Setup
When to Enter?
Open a sell order as soon as a bearish momentum candle closes below the TMA line.
When to Exit?
Close the trade as soon as price closes above the TMA line.
Conclusion
The TMA line can be a very useful moving average indicator. It is a smoothened moving average line. However, it also has the tendency to be lagging. Although, this indicator can be used as a reversal signal indicator, it works best as a trend direction indicator and filter.
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