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Adaptive Moving Average


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Adaptive Moving Average

To make a good signal, a moving average should be smooth but should not lag too much behind the price. Adaptive moving averages adjust their period or weightings in order to meet this objective.

Here we take a simple method of forming an adaptive moving average, by giving the current point a weighting of 1, and then reduce the weightings for each of the previous points every time there is a change in the price, but not in direction.
Thus when the price is highly eratic the adaptive moving average defaults to a simple moving average, while if the price is going in one direction, it can be described as a weighted moving average with an exponential decline in weights.

Using the edit button you may adjust both the period and the amount that the weight declines by.

The adaptive moving average gives signals in much the same way as the weighted moving average, but should be much faster in identifying the end of a trend.
A buy signal is generated when the price goes higher than the AMA, while a sel signal is generated when the price stays below the AMA.