Building a MACD from Deviation-Scaled Moving Averages

Summary

This note describes adapting the moving average convergence divergence indicator by using deviation-scaled moving averages in place of ordinary exponential moving averages. Deviation scaling makes the moving average adaptive, following an approach attributed to John Ehlers. The proposed MACD is formed from a pair of these adaptive averages, extending the underlying moving-average method into a familiar trend and momentum indicator.

The example uses 40-period and 100-period deviation-scaled averages. The note advises experimentation because short fast and slow periods can produce unusual behavior. It gives no formula, chart, trading rules, performance results, or comparison against a conventional MACD, so it establishes an indicator construction idea rather than evidence of an advantage. Users would need to define signal interpretation and test it across markets and conditions before drawing conclusions.

Key ideas

• A MACD can be formed from deviation-scaled moving averages instead of standard exponential averages.
• Deviation scaling makes the moving average adaptive.
• The example compares 40-period and 100-period deviation-scaled averages.
• Shorter settings may produce unusual behavior, and the note provides no performance validation.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.