The Adaptive Moving Average (AMA) is a type of moving average that adjusts its sensitivity to price changes based on market volatility. It is designed to respond more quickly to price changes during periods of high volatility and to smooth out price movements during periods of low volatility.
The AMA is calculated by using a combination of two moving averages: a fast moving average and a slow moving average. The fast moving average responds more quickly to price changes while the slow moving average responds more slowly. The AMA then adjusts the weights given to each moving average based on the volatility of the market, with more weight given to the fast moving average during periods of high volatility and more weight given to the slow moving average during periods of low volatility.
The formula for calculating the AMA is as follows:
AMA = EMA(W * (Price - AMA(n)) + AMA(n), n),
where:
EMA is the Exponential Moving Average function
W is the weight given to the fast moving average, calculated based on market volatility
Price is the current market price
AMA(n) is the current Adaptive Moving Average value for the previous period
n is the number of periods used for the calculation
The AMA is a popular technical analysis tool used by traders and analysts to identify trends and potential buy or sell signals in the market. It is particularly useful in markets that exhibit high volatility, such as the cryptocurrency market or certain commodity markets. By adjusting its sensitivity to market volatility, the AMA helps traders to more accurately identify trend changes and potential trading opportunities.
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