KAMA

Kaufman’s Adaptive Moving Average adjusts its sensitivity based on market volatility.

Usage

Use as an adaptive moving average that is fast in trending markets and slow in choppy, sideways conditions. Reduces whipsaws that plague fixed-period moving averages in ranging markets.

Background

Perry Kaufman designed KAMA using an Efficiency Ratio that measures how directionally price has moved versus total path length. A high ratio (strong trend) produces a fast-reacting EMA; a low ratio (choppy market) produces a near-flat line, dramatically reducing false signals during consolidation. — New Trading Systems and Methods, 4th ed.

Parameters

• period (default: 10): Efficiency Ratio lookback period
• fast_period (default: 2): Fastest smoothing period
• slow_period (default: 30): Slowest smoothing period

Formula

[ ER = \frac{|Price - Price_{t-n}|}{\sum |Price - Price_{t-1}|} ] [ SC = [ER(FastSC - SlowSC) + SlowSC]^2 ] [ KAMA = KAMA_{t-1} + SC(Price - KAMA_{t-1}) ]

Source