Momentum adjusted Moving Average by DGT

The Momentum adjusted Moving Average by DGT indicator provides a predictive moving average that incorporates price action, momentum, acceleration, and trend persistence to offer faster responses than traditional smoothing methods. By calculating the likelihood of momentum shifts, the tool aims to reduce lag while maintaining stability during various market conditions.

Usage

The Usage section describes how the script can be used to identify market trends and potential reversal points. Users can apply the indicator for:

• Trend Identification: Determining the primary market direction based on the slope and color of the MaMA line.
• Support and Resistance: Utilizing the moving average and its adaptive feedback bands as dynamic zones where price may react.
• Price Crossovers: Observing when price crosses the MaMA line as a signal for potential entries or exits.

The script also features Adaptive Feedback Bands that expand during high volatility or strong momentum and contract during consolidation, highlighting pressure zones. For advanced users, setting the MaMA length to 1 creates a "predictive price line" that tracks expected price movements based solely on momentum and probability.

Details

The MaMA calculation is based on the concept of kinematics adapted for financial data. It starts with simple momentum (current price minus historical price) and builds upon it:

1. Momentum: The basic change in price over a specified period.
2. Acceleration: The change in momentum over time. The formula uses $1/2 \times \text{acceleration}$ to adjust the projected price source.
3. Probability (Trend Persistence): Since momentum and acceleration are not constant in trading, the script uses a probability approach (psychological effect) to weight these factors. This acts as a predictive filter to determine the likelihood of a trend continuing or shifting.

The indicator includes an integrated Backtest Framework that allows users to simulate strategy performance using initial capital, stop losses, and directional filters.

Settings

Momentum-Adjusted Moving Average

• Momentum-Adjusted Moving Average (MaMA): Toggles the visibility of the primary indicator.
• Source: Selects the price data used for calculation (e.g., Close, HL2).
• MaMA Length: Sets the base smoothing period.
• MaMA MA Type: Chooses between EMA for responsiveness or SMA for stability.
• Momentum Length: Defines the period used to measure price velocity.
• Include Acceleration: Toggles the use of second-order momentum for faster breakout detection.
• Trend Persistence: Adjusts the probability weighting; higher values result in smoother trends.
• Standard Moving Average: Displays a traditional MA of the same length for direct comparison.

Adaptive Feedback Bands

• Show Feedback Bands: Toggles the dynamic volatility envelopes.
• Feedback Strength: Controls how wide the bands expand relative to price movement.
• Band Smoothness: Adjusts the reaction speed of the bands.

Backtest Framework

• Enable Backtest: Activates the trade simulation module.
• Trade Mode: Filters for Long Only, Short Only, or Both.
• Initial Capital: Sets the starting balance for PnL calculations.
• Apply Stop Loss: Enables a percentage-based exit for risk management.

FAQ

How do I adjust the indicator for faster signals? To increase responsiveness, decrease the MaMA Length and Momentum Length. Additionally, ensure "Include Acceleration" is set to "On."

What is the difference between MaMA and a standard EMA? While a standard EMA only looks at historical price weightings, MaMA calculates where the price "should" be by adding momentum and acceleration vectors, weighted by trend persistence.

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