Gapless TEMA

gapless tema

By eliminating the effect of the overnight gap, the Gapless TEMA transitions smoothly between the previous close and the current open. Instead of waiting for the lookback period to eliminate a gap from its calculation, the Gapless TEMA can be used immediately because it automatically adjusts to any overnight gap.

Indicator Description

The Gapless TEMA is used for instruments and session templates that have a price gap between yesterday’s close and the current open. Overnight gaps occur with instruments that do not have an overnight trading session. For example, the FDAX benchmark index for the Germany equity market is closed from 10:00 PM until 8:00 AM local time. Therefore, significant fluctuations in Asian markets may create price gaps that reflect the overnight price action.

Likewise, gaps will appear if you use a session template that only displays the regular trading session. The CME US Index Futures RTH template will only show price data from 8:30 AM to 3:15 PM Central Time, so any significant price moves that occurred overnight, will create a price gap.

This represents a challenge for the traditional TEMA because the gap is factored in as part of the lookback period. Therefore, at the start of the new session, you’ll have to wait until the gap is eliminated from the TEMA lookback period before using it.

Specifically, the moving averages used in the Gapless TEMA, measures the difference between the prior day close and yesterday’s last indicator plot, transferring it to the current open. Other than adjusting for the overnight gap, the indicator also comes with an option to reset the calculation to start at the current open.

The Gapless TEMA indicator is available for NinjaTrader 8 and the library also features the Gapless EMA, Gapless Keltner Channel, Gapless MACD, Gapless SMAGapless WMA and the Gapless ZLEMA. Finally, we discussed the general application of Gapless Indicators in our Indicator Spotlight newsletter.