Another New Adaptive Moving Average

The Another New Adaptive Moving Average indicator provides a dynamic trend-following smoothing method that adjusts its reactivity based on the relationship between price "effort" and "results."

Usage

The Usage section describes how the script can be used, examples should be provided in this section. This section also focuses on how main settings affect the indicator interpretation and output.

The indicator is primarily used to identify trend direction and strength while filtering out market noise during periods of low volatility.

• Trend Identification: Users can identify the current market bias by observing the color of the moving average. A green line indicates a bullish trend, while a red line indicates a bearish trend.
• Signal Strength: The script employs a dual-tone coloring system. Darker colors (Strong Green/Strong Red) signify increasing momentum where the current price "slope" is accelerating in the direction of the trend. Lighter colors indicate a standard trend without accelerating momentum.
• Trade Management: The adaptive line can serve as a dynamic trailing stop-loss or a target for taking profits. When the price crosses or the color shifts, it may signal a potential trend reversal or exhaustion.

Details

This indicator is based on the concepts introduced by Scott Cong in the March 2023 issue of Stocks and Commodities. It follows the "effort vs. results" logic, where "effort" is defined as the sum of the True Range over a specific period, and "result" is the absolute difference between the current close and the close $x$ bars ago.

The script calculates an adaptive smoothing factor (alpha) by dividing results by effort. When results represent a large portion of the effort (high efficiency), the indicator becomes more reactive to price changes. Conversely, when effort is high but results are minimal (high friction/sideways movement), the indicator becomes more stable and less prone to whipsaws.

Settings

• Source: Determines the price data used for the calculation (e.g., Close, HLCC4).
• Resolution: Allows the indicator to be calculated based on a different timeframe than the current chart.
• Allow Repainting?: Toggles whether the multi-timeframe data is processed in a way that allows values to change after the bar closes.
• Allow Bar Color Change?: Enables or disables the modification of chart bar colors based on the indicator's trend signals.
• Length: Sets the lookback period used to calculate the effort (True Range sum) and result (price change).

FAQ

How do I interpret the different colors on the line? Dark green and dark red represent strong bullish and bearish signals respectively, where the slope is expanding. Light green and light red represent standard bullish and bearish trends.

Can this indicator be used for scalping or long-term investing? Yes, by adjusting the "Length" setting, the indicator can be tuned for various frequencies. A shorter length increases reactivity for scalping, while a longer length provides smoother signals for long-term investing.

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