If you like to use traditional Moving Averages (like SMAs and EMAs) to provide your trades for dynamic levels of Support and Resistance, you will love the Adaptive Moving Average (AMA). Created in 1995 by Perry Kaufman and presented to the world in his book “Smarter Trading: Improving Performance in Changing Markets”, the Adaptive Moving Average (also known as KAMA – Kaufman Adaptive Moving Average) has the goal to be the perfect companion for following a trend without noise, but smooth and fast enough to be useful to the trader.
The AMA will adjust itself when price swings widen (volatility increases) and at the same time when the market is calm, the AMA will follow prices close enough to give you the best of both worlds, acting as an overall trend status and dynamic Support & Resistance and Momentum turning points.
There is an excellent article on the step by step calculation of AMA if you need more information:
https://school.stockcharts.com/doku.php?id=technical_indicators:kaufman_s_adaptive_moving_average
As there are NO rights or wrongs for setting moving averages, you need to calibrate the AMA to the Symbol, Timeframe and Strategy you intend to use in order to have a perfect fit for your trades. This version of AMA is colored, so you will have a 2-color configurable set when the AMA is in an Uptrend or a Downtrend.
SETTINGS
- AMA Period
- Fast EMA Period. This is a Smoothing Constant – part of AMA calculation. Leave it at 2 at the beginning. Then when you need more behavior you can play with this and the following input.
- Slow EMA Period. The second Smoothing Constant. Leave it at 30 at the beginning.
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