A New Adaptive Moving Average

The A New Adaptive Moving Average indicator provides a dynamic smoothing mechanism that adjusts its sensitivity based on price volatility and the relationship between market effort and results.

Usage

The Usage section describes how the script can be used to identify trend direction and momentum shifts. The indicator is primarily used as a trend-following tool that stays close to price action during high-momentum moves and flattens out during periods of consolidation.

• Trend Identification: A change in the line color signals a shift in the trend. When the line turns green, it indicates a bullish trend, and when it turns red, it indicates a bearish trend.
• Signal Strength: The indicator features a multi-tone color system. Darker colors (Strong Bullish/Strong Bearish) indicate that the price is moving away from the average with increasing momentum. Lighter colors represent a standard trend signal where the slope is less aggressive.
• Trade Execution: Traders often use a color flip (e.g., red to green) as a potential buy entry and the reverse (green to red) as a potential sell entry.

Details

This indicator was originally conceptualized by Scott Cong in the March 2023 issue of Stocks and Commodities. It builds upon the foundation of the Kaufman Adaptive Moving Average (KAMA) but introduces a specific "effort vs. results" logic to determine the smoothing factor (alpha).

In this calculation:

• Effort: Defined as the sum of the True Range over a specific period, representing the total battle between bulls and bears.
• Result: Defined as the difference between the highest close and the lowest close over the same period.

The ratio of results to effort creates a dynamic alpha. When price movement is efficient (large directional moves with little retracement), the alpha increases, making the average track price more closely. When price movement is inefficient (choppy or sideways), the alpha decreases, smoothing out the noise.

Settings

• Source: Determines the price data used for the calculation (e.g., hlcc4, Close, Open).
• Resolution: Allows the indicator to be calculated based on a different timeframe than the current chart.
• Allow Repainting?: Toggles whether the indicator uses real-time data that may change before the bar closes.
• Allow Bar Color Change?: When enabled, the chart bars will be colored to match the trend state of the indicator.
• Length: Sets the lookback period for calculating the highest/lowest closes and the sum of the True Range.

FAQ

How do I interpret the different shades of green and red? Dark green represents a strong bullish signal where the slope is increasing, while light green represents a standard bullish trend. Similarly, dark red indicates a strong bearish signal with an increasing downward slope, while light red represents a standard bearish trend.

Can this indicator be used for scalping or long-term investing? Yes, by adjusting the "Length" setting, you can tune the indicator for different styles. A shorter length is more suitable for scalping and day trading, while a longer length helps filter noise for long-term trend following.

How do I get access to A New Adaptive Moving Average? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.