Variable Moving Average
A Variable Moving Average is an exponential moving average that automatically adjusts the smoothing weight based on the volatility of the data series. The more volatile the data is, the more weight is given to the more recent values. The Variable Moving Average solves a problem with most moving averages. In times of low volatility, such as when the price is trending, the moving average time period should be shorter to be sensitive to the inevitable break in the trend. Whereas, in more volatile non-trending times, the moving average time period should be longer to filter out the choppiness.
Almost any measure of volatility can be used in calculating the Variable Moving Average, however, most implementations use a 9 period Chande Momentum Oscillator (CMO).
The Variable Moving Average is also known as the VIDYA Indicator.
The Variable Moving Average was developed by Tushar S. Chande and first presented in his March, 1992 article in Technical Analysis of Stocks & Commodities magazine, in which a standard deviation was used as the Volatility Index. In his October, 1995 article in the same magazine, Chande modified the VIDYA to use his own Chande Momentum Oscillator (CMO) as the Volatility Index.
See also Exponential MA, Least Squares MA, Simple MA, Triangular MA, Weighted MA, Welles MA, Volume Adjusted MA, Zero Lag Exponential MA, DEMA, TEMA and T3.
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