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 The Kaufman Adaptive Moving Average Indicator (KAMA).

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Join date : 2011-04-13

PostSubject: The Kaufman Adaptive Moving Average Indicator (KAMA).   Wed Aug 10, 2011 11:44 am

Kaufman integrated an adaptive solution into the conventional MA in an attempt to make an indicator that was more trend-efficient. Using exponential moving averages results in slightly less amounts of lag because newer currency prices are valued more than older market prices.

But the EMA is sometimes too slow, which produces unwanted lag, and sometimes too fast, moving too much when there is no noise. One solution is to multiply the weighting factor by a volatility ratio.

Doing this would mean that the moving average would be further from the current price in volatile markets. When price rises, the KAMA climbs more quickly than the SMA because changes its sensitivity to price fluctuations. Thus a change of trend is noticed slightly earlier.

Even better results are obtained if the smoothing is adapted to the behaviour of currency prices. If the price suddenly is moving determined in a certain direction, the smoothing can temporary be decreased to shorten lag and lessen undershoot. This action would have the effect of causing the moving average to increasingly lag price as volatility rises. More about Adaptive Moving Average Indicator:
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The Kaufman Adaptive Moving Average Indicator (KAMA).
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