Adaptive Moving Average

Created by Perry Kaufman and explained in his book “Smarter Trading”, Adapting Moving Average is a technical indicator that aims to address the weaknesses of Simple Moving Averages (SMA) and Exponential Moving Averages (EMA).

Instead of just averaging out a set number of closing prices (SMA) or doing this and weighting more recent data (EMA), adaptive moving averages replace the weighting of EMAs with something called an Efficiency Ratio.

All this means is that the resulting trend line is less sensitive to recent prices and so, theoretically, winning trades can be allowed to run for longer before receiving a signal to close them.

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