Kaufman Adaptive Moving Average and Its Efficiency-Based Smoothing

Summary

The document describes the Kaufman Adaptive Moving Average (KAMA), an adaptive smoothing indicator. It provides a recursive update in which the prior average moves toward the current applied price according to a smoothing constant. That constant is derived from the Efficiency Ratio, which compares the absolute price change over the lookback period with the sum of absolute period-by-period price changes. In this way, the formula adjusts smoothing based on how directional price movement is relative to its intervening movement.

The stated inputs are the calculation period and applied price. The document gives the formulas but does not explain initialization, treatment of missing observations, parameter selection, or how to interpret KAMA signals in a trading system. It also provides no market examples, backtest results, or comparison with other moving averages. The description is therefore a compact formula reference; it establishes how the indicator is calculated, not whether using it improves trading outcomes.

Key ideas

• KAMA updates its previous value toward the applied price using a variable smoothing constant.
• The Efficiency Ratio compares net price movement over a lookback with the sum of absolute intervening changes.
• The calculation uses a period and an applied price as inputs.
• The document gives the indicator formula but no trading rules or performance evidence.

Tags

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