AMA

Notes:

These indicators and concepts are specifically designed for TradingView.com

Overview

The Adjustable Moving Average (AMA) is a technical analysis indicator that uses a variable smoothing factor to adapt to changes in market volatility. The AMA was developed by Perry Kaufman and is designed to reduce lag and noise, making it easier to identify trends and trading opportunities.

How to Trade

The Adjustable Moving Average (AMA) can be traded in a similar way to other moving averages. Some traders use it as a trend-following indicator, with buy signals generated when the price is above the AMA and sell signals generated when the price is below the AMA. One common trading strategy with the AMA is to use it in combination with another technical indicator, such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD). For example, a trader might enter a long position when the price is above the AMA and the RSI is above 50, indicating bullish momentum. Another way to trade the AMA is to look for crossovers with other moving averages, such as the 50-day or 200-day moving average. When the AMA crosses above these longer-term moving averages, it may signal a bullish trend reversal, while a crossover below these moving averages could indicate a bearish trend reversal.

How to Calculate

The Adjustable Moving Average (AMA) is a technical indicator that adjusts its sensitivity to market volatility. It is calculated using the following steps:

1. Calculate the Absolute Price Change (APC) of each period by taking the difference between the current price and the price of n periods ago, and taking the absolute value of the result.APC = |Close - Close n periods ago|
2. Calculate the ER (Efficiency Ratio) by dividing the current APC by the sum of the APC over n periods.ER = APC / Sum of APC over n periods
3. Calculate the Smoothing Constant (SC) based on the volatility of the market. This can be done by multiplying the ER by a multiplier (M) and adding 1-M to the result. The multiplier is usually set to 2 / (n+1), where n is the number of periods used to calculate the AMA.SC = (ER x M) + (1 - M)
4. Calculate the AMA for the current period by multiplying the current price by the SC and adding the result to the previous period's AMA multiplied by 1 minus the SC.AMA = (Close x SC) + (Previous AMA x (1 - SC))

The AMA can be used as a trend-following indicator, similar to the Exponential Moving Average (EMA). It is typically used to identify changes in market trends and to generate buy and sell signals. When the AMA is rising, it suggests a bullish trend, while a declining AMA suggests a bearish trend. Traders can use the crossover of the AMA with the price to generate trading signals, or they can use the slope of the AMA to confirm market trends.