Golden Cross KAMA

The Golden Cross KAMA indicator provides a trend-following framework that utilizes dual Kaufman’s Adaptive Moving Averages to filter market noise and highlight momentum shifts through dynamic price-action coloring.

Usage

The Golden Cross KAMA (Kaufman's Adaptive Moving Average) is designed to help traders identify the prevailing market trend while accounting for volatility. The indicator's primary output is a visual line that changes color based on the relationship between price and two adaptive moving averages:

• Bullish Signal: The line turns green when the Fast KAMA is above the Slow KAMA and the current price is trading above the Fast KAMA. This indicates strong upward momentum.
• Bearish Signal: The line turns red when the Fast KAMA is below the Slow KAMA and the price is trading below the Fast KAMA. This suggests strong downward momentum.
• Neutral/Indeterminate: The line returns to the default chart color when price action is consolidated between the averages or when the trend direction is transitioning.

Traders often use this tool in conjunction with oscillators like the RSI to confirm overbought or oversold conditions, or with Bollinger Bands to gauge if the price is deviating significantly from the mean during a KAMA-defined trend.

Details

The core of this indicator is Kaufman’s Adaptive Moving Average (KAMA), which differs from standard moving averages by adjusting its sensitivity based on market efficiency.

1. Efficiency Ratio (ER): The script calculates the ER by dividing the total price change over a period by the sum of absolute price changes. A higher ER indicates a trending market, while a lower ER indicates a noisy, range-bound market.
2. Smoothing Constant (SC): The ER is used to scale between a "Fastest SC" and a "Slowest SC." This allows the moving average to speed up during clear trends and slow down during choppy price action.
3. Dual Calculation: The script executes two separate KAMA calculations (Fast and Slow) using different length inputs. The crossover and crossunder of these two lines serve as the basis for the "Golden Cross" logic and automated alerts.

Settings

• Source: Determines the price data used for the KAMA calculations (e.g., Close, Open, HL2).
• Fast: The period used to calculate the Efficiency Ratio for the faster KAMA line.
• Slow: The period used to calculate the Efficiency Ratio for the slower KAMA line.
• Fastest SC: Sets the smoothing constant limit for the most reactive state of the KAMA.
• Slowest SC: Sets the smoothing constant limit for the least reactive state of the KAMA.

FAQ

What makes KAMA different from a simple moving average? KAMA is volatility-adaptive. It automatically adjusts its smoothing based on market noise, becoming more responsive during trends and less responsive during sideways consolidation to minimize false signals.

How do the alerts function in this script? The script includes built-in alerts for "Bullish KAMA Cross" (Fast KAMA crossing above Slow KAMA) and "Bearish KAMA Cross" (Fast KAMA crossing below Slow KAMA), which are triggered upon the close of the bar.

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