Dynamically Adjustable Moving Average

23 thg 4, 2019

Introduction

The Dynamically Adjustable Moving Average (AMA) is an adaptive moving average proposed by Jacinta Chan Phooi M’ng (1) originally provided to forecast Asian Tiger's futures markets. AMA adjust to market condition in order to avoid whipsaw trades as well as entering the trending market earlier. This moving average showed better results than classical methods (SMA20, EMA20, MAC, MACD, KAMA, OptSMA) using a classical crossover/under strategy in Asian Tiger's futures from 2014 to 2015.

Dynamically Adjustable Moving Average

AMA adjust to market condition using a non-exponential method, which in itself is not common, AMA is described as follow :

1/v * sum(close,v)

where v = σ/√σ

σ is the price standard deviation.

v is defined as the Efficacy Ratio (not be confounded with the Efficiency Ratio). As you can see v determine the moving average period, you could resume the formula in pine with sma(close,v) but in pine its not possible to use the function sma with variables for length, however you can derive sma using cumulation.

sma ≈ d/length where d = c - c_length and c = cum(close)

So a moving average can be expressed as the difference of the cumulated price by the cumulated price length period back, this difference is then divided by length. The length period of the indicator should be short since rounded version of v tend to become less variables thus providing less adaptive results.

AMA in Forex Market

In 2014/2015 Major Forex currencies where more persistent than Asian Tiger's Futures (2) , also most traded currency pairs tend to have a strong long-term positive autocorrelation so AMA could have in theory provided good results if we only focus on the long term dependency.AMA has been tested with ASEAN-5 Currencies (3) and still showed good results, however forex is still a tricky market, also there is zero proof that switching to a long term moving average during ranging market avoid whipsaw trades (if you have a paper who prove it please pm me).

Conclusion

An interesting indicator, however the idea behind it is far from being optimal, so far most adaptive methods tend to focus more in adapting themselves to market complexity than volatility. An interesting approach would have been to determine the validity of a signal by checking the efficacy ratio at time t. Backtesting could be a good way to see if the indicator is still performing well.

References

(1) J.C.P. M’ng, Dynamically adjustable moving average (AMA’) technical
analysis indicator to forecast Asian Tigers’ futures markets, Physica A (2018),
doi.org/10.1016/j.physa.2018.06.010

(2) researchgate.net/publication/313350475_Fractal_analysis_of_currency_market_Hurst_index_as_an_indicator_of_abnormal_events

(3) ncbi.nlm.nih.gov/pmc/articles/PMC5004863/

23 thg 4, 2019

Phát hành các Ghi chú

-Calculation errors fixed

-Two inputs short/long added for the efficacy ratio calculation, long is should always be greater than short, short is the moving average period when market is trending and long the period when market ranging.

If you still have an error try to reduce long or increase short.

-Increased line width.

25 thg 4, 2019

Phát hành các Ghi chú

- Added the option to change colors based on if price is greater/lower than the moving average.