Variable Index Dynamic Average indicator
The variable index dynamic average (VIDYA) indicator is a technical analysis tool used to determine the direction of a financial market's trend. It is similar to other moving average indicators, but its calculation incorporates volatility in the market.
The VIDYA indicator uses a combination of exponential moving averages (EMAs) and standard deviations to adjust the sensitivity of the moving average to market volatility. The formula for VIDYA is:
VIDYA = EMA(V, n * S / (1 + S)),
where V is the closing price of the asset, n is the number of periods used in the EMA calculation, and S is a volatility factor between 0 and 1.
The volatility factor is calculated as the difference between two EMAs of the absolute value of the difference between the closing price and the previous period's VIDYA value, divided by the sum of the two EMAs. This factor is then multiplied by a smoothing constant to adjust its impact on the VIDYA value.
Overall, the VIDYA indicator attempts to provide a more responsive moving average that adjusts to changes in market volatility. Traders and analysts use it to identify potential buy or sell signals in the market.
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