KAMA Divergence

The KAMA Divergence indicator calculates the percentage difference between price and Kaufman's Adaptive Moving Average (KAMA) to identify momentum shifts and trend exhaustion.

Usage

The indicator can be used to identify potential trend reversals or continuations based on the relationship between price and its adaptive average.

• Trend Direction: When the Divergence line is above the center line (0), it indicates price is trading above its KAMA, suggesting bullish momentum. Conversely, values below zero suggest bearish momentum.
• Threshold Crosses: The indicator includes upper and lower trigger thresholds. Crossing these levels can signal that the divergence has reached a significant point, potentially indicating overextended moves.
• Signal Line: A smoothed version of the divergence line acts as a signal. Crossovers between the main Divergence line and the Signal line can be used to identify changes in momentum early.

Details

Kaufman's Adaptive Moving Average (KAMA) is designed to account for market noise or volatility. It adjusts its smoothing factor based on an efficiency ratio. This indicator takes that concept a step further by measuring the percentage distance between the current close and the KAMA value. By expressing this as a percentage, the oscillator becomes normalized across different price levels. The resulting "divergence" is then smoothed using a secondary KAMA calculation to create a responsive signal line.

Settings

• Period: The lookback period used for the primary KAMA calculation.
• Signal Period: The lookback period used for smoothing the divergence line into a signal line.
• Smoothing Constant Fast End: The fastest smoothing power used in the KAMA efficiency calculation.
• Smoothing Constant Slow End: The slowest smoothing power used in the KAMA efficiency calculation.
• Trigger Threshold: Sets the horizontal levels for the upper and lower triggers.

FAQ

How do I use the KAMA Divergence?

The indicator is best used to spot momentum changes. Look for the Divergence line crossing the Signal line or crossing the zero center line to identify shifts in trend bias.

What makes KAMA different from a standard EMA?

KAMA adjusts its speed based on market volatility. It becomes faster during trending moves and slower during choppy, sideways price action, which helps reduce lag while minimizing false signals.

How can I access KAMA Divergence?

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