Kaufman Adaptive Moving Average

[ChattiFX]

Hi, from a thread I started about general trend direction I revisited how I assess the overall trend direction.

Although not a fully formed plan I've started using Kaufman Adaptive Moving Averages and S/R. I just thought I would share a couple of charts and I'd be interested in any opinions as there doesn't seem to be much on KAMA on here.

Essentially I am using a 4 hour chart to assess direction and then a 5 min chart for signals. I was using TMA's for the 4 hour direction but as with all MA's sideways and "the bend at the end" are an issue. KAMA & S/R seem to give me a better idea of when the trend is going sideways which is when most of my loses occur. I'm looking more at the gradient and bandwidth of the KAMA and 2xStd bands rather than the which side of the KAMA the price is.

See below charts. the paler blue/red dots are a 5 period KAMA and the darker ones are 20, with 2xStD Bands in blue. The longer KAMA is the one I am mostly basing my decision on with the shorter KAMA as almost a pre-signal...

EUR/GBP - Long
AUD/JPY - Short
AUD/USD - Just breaking out of a sideways movement. This pair has been a bit of a killer using TMA as it crossed back and forth. KAMA and bands gives quite a nice picture as to why.

I'm still learning how to interpret the indicators properly but I am happy with the way I am getting on so far.

Hope this is of interest to a few and all opinions welcome

Cheers,

CFX

 

[trendie]

Good to see someone else using KAMAs too.
I like the way the line doesnt wiggle about too much when in range mode.
I cant remember how the code works, but the price needs to move beyond a tolerance level before the dot colour changes.

 

[ChattiFX]

Good to see someone else using KAMAs too.
I like the way the line doesnt wiggle about too much when in range mode.
I cant remember how the code works, but the price needs to move beyond a tolerance level before the dot colour changes.

Yer I stumbled across it trying to find a moving average that adapts to volatility and the "flatness" during ranging periods immediately caught my eye.

I'm surprised it's not more commonly used/known, or maybe it is and I've just been slow on the up take

CFX

 

[trendie]

Yer I stumbled across it trying to find a moving average that adapts to volatility and the "flatness" during ranging periods immediately caught my eye.

I'm surprised it's not more commonly used/known, or maybe it is and I've just been slow on the up take

CFX

A good idea with any indicator is to understand the underlying formula.
I know I dissected it some years ago, so I could understand what triggered it to go into flatline mode.

If I recall, it is to do with ATR, but don't quote me.

Just a note of caution, I would be inclined to revert to simpler indicators, or at least use complex ones sparingly, as complex ones may not be available on different platforms. Or, if they are, their formulas may be subtly different.

 

[NVP]

Hey there

the Kaufman Adaptive is available as a Normal MA Line and Ive also seen it used as an envelope as well ....

I think it was explained in an older edition of "Currency Trader" and naturally will be available if you google extensively

its not bad as long as you treat it with the same cavats as any Ma system .....and I have looked at it also in my Forex Strengthmeter research

its actually not bad as a trailing stop method as well if set realistically

N

 

[ChattiFX]

A good idea with any indicator is to understand the underlying formula.
I know I dissected it some years ago, so I could understand what triggered it to go into flatline mode.

If I recall, it is to do with ATR, but don't quote me.

Just a note of caution, I would be inclined to revert to simpler indicators, or at least use complex ones sparingly, as complex ones may not be available on different platforms. Or, if they are, their formulas may be subtly different.

Yes fair point re understanding the underlying formula. Incidentally all my signals, stop losses etc are based around ATR so that the system self corrects to the price action on different pairs.

I only really have two indicators, one for general direction and one for signals. Completely agree that over using indicators can cause more harm than good.

Thanks for your note.

Cheers,

CFX

 

[ChattiFX]

Hi, just wanted to update this a bit...

I have spent some time trying to understand how I use KAMA as a general trend filter on a 4 hour chart. You can see on the attached chart the settings I have settled on, they are not far from standard, just a little more conservative.

As a rule of thumb I follow the dots on the current bar. i.e. blue = Long, Red = short, None = no trade.

As secondary/confirmation I also look at the Bollinger Bandwidth, S/R and highs and lows as a way of highlighting between trend, direction change and consolidation. See the movement round 5th/6th August as a time where I ignored the dots and left the pair alone. The same goes for the last couple of days, I'd be looking for a break through the Bands before switching my EA to Long/Short.

Only issue I have is trying to add this to my automated EA... :-/

Anyway for the moment I like the info the KAMA is giving me... biggest plusses I would say are keeping me out of sideways movement and adjusting to the trend better than a standard MA. Which was the point of using it really ha...

Cheers,

CFX.