True Range Adjusted Exponential Moving Average

The True Range Adjusted Exponential Moving Average indicator dynamically adapts its smoothing factor based on market volatility to provide a more responsive trend-following tool. By integrating a stochastic measure of the True Range into the standard EMA calculation, it aims to reduce lag during high-volatility moves while maintaining stability during consolidation.

Usage

The True Range Adjusted Exponential Moving Average is used to identify trend direction and potential entry or exit points with higher sensitivity to price expansion.

• Trend Identification: The indicator plots a color-coded line on the chart. A green line indicates a bullish trend, while a red line indicates a bearish trend.
• Signal Strength: The script utilizes two shades for each color. A vibrant green or red signifies a strong trend (price is moving away from the average with increasing momentum), whereas a faded shade indicates a weakening trend or potential pullback.
• Volatility Adaptation: Unlike a static EMA, this tool reacts to the "Multiple" setting. Increasing the multiplier makes the indicator more sensitive to spikes in True Range, causing the average to track price more closely during volatile breakouts.
• Bar Coloring: Users can enable bar coloring to align the entire chart's visual output with the current trend state detected by the indicator.

Details

Created by Vitali Apirine and featured in Stocks & Commodities magazine, this indicator modifies the traditional Exponential Moving Average formula. The core logic involves calculating a stochastic value of the True Range (TR) over a specified lookback period.

The formula identifies where the current TR sits relative to its highest and lowest values over the defined length. This ratio (ranging from 0 to 1) is then multiplied by a user-defined factor and added to the base smoothing constant (alpha). Consequently, when volatility increases, the alpha increases, making the EMA more "fast." When volatility decreases, the alpha reverts toward its standard state, smoothing out minor price fluctuations.

Settings

• Source: Determines the price data used for the calculation (default is Close).
• Resolution: Allows the indicator to be calculated on a different timeframe than the current chart.
• Allow Repainting?: Toggles whether the script uses real-time data that may change before a bar closes.
• Allow Bar Color Change?: Enables or disables the changing of candle colors based on the trend signal.
• Length: The lookback period used for both the EMA smoothing and the True Range stochastic calculation.
• Mult: A multiplier that controls how significantly the True Range affects the EMA's responsiveness. Higher values result in a faster-reacting average during volatile periods.

FAQ

How do I interpret the different colors on the line?

The color-coding represents the relationship between the price and the average. Strong green indicates a price above the average with increasing momentum, while strong red indicates a price below the average with increasing downward momentum. Faded colors suggest the trend is still active but slowing down.

What is the advantage of using True Range for an EMA?

Standard EMAs use a fixed smoothing factor regardless of market conditions. By using True Range, the indicator automatically speeds up during breakouts and slows down during sideways markets, potentially reducing the "whipsaw" effect common in trend-following indicators.

How can I access the True Range Adjusted Exponential Moving Average?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.