VAXMA

VAXMA is a Volatility Adapted Exponential Moving Average.

When price suddenly change, volatility calculated by the standard deviation of the mean price usually also shoots up. It therefore seemed a good idea to modify the popular XMA to take advantage of such fact. The VAXMA uses the volatility to adapt, i.e. increase the numbers of bars used when the market enters a trading range, and decrease the number of bars when the price starts running away in either direction. An Acceleration parameter tuning affects the VAXMA responsiveness to volatility change.

The results do confirm our intuition. Please see this chart below:

In shallow price movements, VAXMA is less sensitive than other averages.

In sudden price changes, VAXMA is more responsive.

When it comes to analyzing predictive value of this indicator, we did a correlation calculation, and found that apart from the current close being indeed a good predictor of next bar's close, the VAXMA indicator fared better than any other moving averages.

Now compared with MAMA and FAMA available on the Tips section of the Ward.net site:

Again, VAXMA is better correlated with Lead(Close,1), and by a reasonable margin.

Please note the VAXMA is not a standard 'smoothing' indicator. It may be indeed look a little jagged than the excellent Jurik's JMA. Our objective however is to have a highly responsive MA when most needed, i.e. close to reversal points.

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