Corrected Average Uses a Volatility Threshold to Filter Price Movement

Summary

Corrected Average, also called Optimal Moving Average, is a smoothed indicator intended to avoid following price for small deviations that may produce false trend signals. It starts with a moving average of the selected applied price, using a configurable period and calculation method. The current indicator value is then adjusted toward that average according to the size of the gap between the previous indicator value and the moving average.

The adjustment uses a threshold derived from the squared standard deviation of the applied price over the period. When the squared gap exceeds this threshold, the indicator moves toward the average with a weight determined by the excess gap; otherwise, the weight is zero and the prior indicator value is retained. This gives the calculation a volatility-dependent filter. The document defines the formula and parameters but supplies no examples, performance evidence, or guidance for choosing settings, so its claimed reduction in false signals is not validated here.

Key ideas

• Corrected Average is also known as Optimal Moving Average.
• The indicator compares a moving average with its prior output.
• A squared standard deviation sets a threshold for whether the output moves.
• When the squared gap does not exceed the threshold, the prior value is retained.
• The description gives no empirical evidence about signal quality.

Tags

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