TASC 2022.03 Relative Strength Volatility-Adjusted EMA

The TASC 2022.03 Relative Strength Volatility-Adjusted EMA indicator is a trend-following tool designed to filter price movements and identify potential turning points by incorporating volatility relative strength into a standard exponential moving average.

Usage

The Usage section describes how the script can be used to identify market trends and shifts in momentum. The indicator plots a volatility-adjusted EMA (RS VolatAdj EMA) alongside a standard EMA.

• Trend Identification: When the RS VolatAdj EMA is above the standard EMA, the background fill and line color turn green, indicating a bullish trend. Conversely, when the RS VolatAdj EMA is below the standard EMA, the colors turn red, indicating a bearish trend.
• Crossovers: Traders can use crossovers between the RS VolatAdj EMA and the standard EMA as potential signals for trend reversals or entry/exit points.
• Responsiveness: Because the script adjusts its weighting based on volatility strength, it aims to be more responsive than a traditional EMA during periods of high relative strength in volatility.

Details

This indicator is based on the article "Relative Strength Moving Averages - Part 3: The Relative Strength Volatility-Adjusted Exponential Moving Average" by Vitali Apirine, published in the March 2022 edition of Technical Analysis of Stocks & Commodities (TASC).

The script calculates "Volatility Strength" by analyzing a volatility index (typically the VIX). It separates volatility into "up day" and "down day" components based on price action, smooths them using an EMA, and then determines the relative difference between the two. This strength value is then used as a multiplier to adjust the smoothing constant of the price EMA, making the average more or less reactive depending on whether the volatility confirms the price direction.

Settings

• VIX Selection: Specifies the symbol for the volatility index used in the calculations (default is TVC:VIX).
• Source: The price data input used for the calculation (e.g., Close, Open, HL2).
• EMA Period: The length used for the baseline standard exponential moving average and the price component of the adjusted EMA.
• Volatility Strength Period: The period used to smooth the up-day and down-day volatility components.
• Multiplier: A scaling factor that determines how significantly the volatility strength affects the price EMA's responsiveness.

FAQ

How do I interpret the colored fill between the lines? The fill highlights the relationship between the RS VolatAdj EMA and the standard EMA. Green indicates the adjusted average is higher (bullish), and red indicates it is lower (bearish).

What volatility index should I use? While the VIX is the standard choice for equity markets, users can select other volatility indices or relevant symbols that represent volatility for their specific asset class.

How can I access the TASC 2022.03 Relative Strength Volatility-Adjusted EMA? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.