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. In this month's Traders' Tips, I will present
two Easy Language studies and an Easy Language system that are based
on the adaptive moving average.
The
adaptive moving average calculation that is used in the studies and
system in TradeStation or SuperCharts 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.
Type: Function, Name: AMA
Inputs: Period(Numeric);
Vars: Noise(0), Signal(0), Diff(0), efRatio(0), Smooth(1), Fastest(.6667), Slowest(.0645), AdaptMA(0);
Diff = AbsValue(Close - Close[1]);
IF CurrentBar <= Period Then AdaptMA = Close;
IF CurrentBar > Period Then Begin
Signal = AbsValue(Close - Close[Period]);
Noise = Summation(Diff, Period);
efRatio = Signal / Noise;
Smooth = Power(efRatio * (Fastest - Slowest) + Slowest, 2);
AdaptMA = AdaptMA[1] + Smooth * (Close - AdaptMA[1]);
End;
AMA = AdaptMA;
Inputs: Period(Numeric), Pcnt(Numeric);
Vars: Noise(0), Signal(0), Diff(0), efRatio(0), Smooth(1), Fastest(.6667), Slowest(.0645), AdaptMA(0), AMAFltr(0);
Diff = AbsValue(Close - Close[1]);
IF CurrentBar <= Period Then AdaptMA = Close;
IF CurrentBar > Period Then Begin
Signal = AbsValue(Close - Close[Period]);
Noise = Summation(Diff, Period);
efRatio = Signal / Noise;
Smooth = Power(efRatio * (Fastest - Slowest) + Slowest, 2);
AdaptMA = AdaptMA[1] + Smooth * (Close - AdaptMA[1]);
AMAFltr = StdDev(AdaptMA-AdaptMA[1], Period) * Pcnt;
End;
AMAF = AMAFltr;
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."
Type: Indicator, Name: Adaptive Moving Average
Type: Indicator, Name: Adaptive Moving Average
Inputs: Period(10), Smooth("Y");
IF UpperStr(Smooth) = "Y" Then
Plot1(LinearRegValue(AMA(Period), Period, 0), "Smooth AMA")
Else
Plot2(AMA(Period), "Adaptive MA");
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.
Some suggested format settings are given after the indicator code.
Type: Indicator, Name: Adaptive Moving Average Fltr
Type: Indicator, Name: Adaptive Moving Average Fltr
Inputs: Period(10), Pcnt(.15);
Vars: AMAVal(0), AMAFVal(0), AMALs(0), AMAHs(0);
AMAVal = AMA(Period);
AMAFVAl = AMAF(Period, Pcnt);
IF CurrentBar = 1 Then Begin
AMALs = AMAVal;
AMAHs = AMAVal;
End Else Begin
IF AMAVal < AMAVal[1] Then
AMALs = AMAVal;
IF AMAVal > AMAVal[1] Then
AMAHs = AMAVal;
IF AMAVal - AMALs > AMAFVal Then Begin
Plot1(AMAFVal, "Buy");
IF Plot1[1] = 0 Then
Alert = True;
End Else
IF AMAHs - AMAVal > AMAFVal Then Begin
Plot2(AMAFVal, "Sell");
IF Plot2[1] = 0 Then
Alert = True;
End;
Plot3(AMAFVal, "AMAFilter");
End;
Plot Name Type Color Weight
Plot1 Buy Histogram Blue Thinnest
Plot2 Sell Histogram Red Thinnest
Plot3 AMAFilter Line Magenta Thinnest
Scaling: Screen
This
code is also available at Omega Research's Web site. The name of the
file is "AMA.ELA." Please note that all Traders' Tips analysis techniques
posted at Omega Research's Web site can be utilized by both TradeStation
and SuperCharts. Whenever possible, the posted analysis techniques will
include both Quick Editor and Power Editor formats.
-- Gaston Sanchez, Omega Research
800 422-8587, 305 270-1095
Internet: http://www/omegaresearch.com