Adaptive Moving Average

Summary

The adaptive moving average that was discussed in the interview with Perry Kaufman in the 1998 STOCKS & COMMODITIES Bonus Issue (the article originally appeared in March 1995) is an excellent alternative to standard moving average calculations

Screen Shots

Usage

The adaptive moving average calculation that is used in the studies and system in TradeStation is performed primarily by a function referred to as “AMA.” Another function referred to as “AMAF” is used to calculate the adaptive moving average filter. As always, the functions should be created prior to the development of the studies/system.

Once you have successfully created both functions, you can then create the two studies and the system. The first indicator displays the adaptive moving average line, with an optional twist. The twist is that the AMA line can be smoothed using linear regression. Thus, I have included in the indicator an input named “smooth” that allows you to determine if the AMA line should be smoothed or not. A “Y” as the input value smoothes the calculation. An “N” simply plots the raw AMA line. This indicator should be scaled to “Same as price data.”

The second indicator, “Mov Avg Adaptive Fltr,” takes the filtering concept and applies it to an indicator. Based on the filtered adaptive moving average (AMAF) parameters, this indicator will plot a vertical blue or red line, depending on the condition that is met. The values reflected by the vertical lines reflect the value of the AMA filter calculation.

Note that the following recommendations provide an excellent chart:
Plot1 should have a label of “Buy” be of type “Histogram” have a color of “Blue” and a line thickness of “Thinnest”
Plot2 should have a label of “Sell” be of type “Histogram” have a color of “Red” and a line thickness of “Thinnest”
Plot3 should have a label of “AMAFilter” be of type “Line” have a color of “Magenta” and a line thickness of “Thinnest”
A TradeStation workspace is included in the zip file for an example of usage.

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Happy Trading!

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