Multi Deviation Scaled Moving Average

The Multi Deviation Scaled Moving Average indicator provides a comprehensive trend analysis system by combining eight adaptive Deviation Scaled Moving Averages (DSMA) into a single visual tool for assessing market momentum and volatility.

Usage

The script serves as a multi-layered trend confirmation tool. Traders can use it to identify the prevailing market bias through several visual components:

• Trend Direction and Strength: The primary moving average line changes color and intensity based on the aggregate trend strength of the eight underlying DSMAs. Brighter greens indicate strong bullish momentum, while brighter reds indicate strong bearish momentum.
• Trend Percentage Histogram: A unique dashboard-style histogram appears in the corner of the chart, displaying the percentage of bullish vs. bearish bias. This provides a quick quantitative reading of market sentiment.
• Signal Markers: Diamond-shaped plots appear on the chart when specific trend strength crossovers occur. These markers highlight potential transition points or areas where trend momentum is shifting significantly.
• Multi-Faceted Analysis: Because the tool uses eight different periods simultaneously, it acts as a filter that reduces noise common in single-period moving averages.

Details

The core of this tool is the Deviation Scaled Moving Average (DSMA) developed by John Ehlers. The DSMA is an adaptive moving average that modifies its alpha (smoothing factor) based on the standard deviation of a filtered price cycle.

In this implementation, the tool calculates eight distinct DSMAs with incrementally increasing periods. The "Sensitivity" setting determines the gap between these periods. By comparing these multiple averages against a baseline (the longest period), the script calculates a "Trend Score." This score determines the final color of the line and the percentage values shown in the histogram.

Settings

• Period: Sets the base calculation period for the first DSMA in the sequence.
• Sensitivity: Determines the step size between the eight DSMA periods. A lower sensitivity value results in a larger step, making the indicator react more slowly to price changes.
• Source: The price data used for the calculation (default is HLC3).

FAQ

How do I interpret the diamond signals? The diamond markers appear when the internal trend score crosses specific thresholds (0.3 for bullish shifts and 0.7 for bearish shifts), indicating a potential change in market leadership.

What is the benefit of using multiple DSMAs instead of one? Using a cluster of DSMAs allows the indicator to see "under the hood" of a trend. It measures how many different time horizons are in agreement, providing a more robust signal than a single moving average.

How can I access the Multi Deviation Scaled Moving Average? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.