Kaufman Adaptive Moving Average: Efficiency-Based Smoothing

Summary

Kaufman’s Adaptive Moving Average (KAMA) adjusts its smoothing in response to the market’s directional efficiency. The described calculation compares the absolute price change over a lookback interval with the sum of absolute one-step price changes over that interval. This efficiency ratio is mapped between fast and slow smoothing constants, then squared to form the update coefficient. The average is updated recursively by blending the current close with the previous KAMA value.

The example gives default settings of a 10-bar efficiency lookback, a 2-bar fast setting, and a 30-bar slow setting; it initializes early values from the close. In principle, a more directional move raises the coefficient and makes KAMA respond faster, while choppier movement lowers it and increases smoothing. The document provides no chart, tests, or evidence of predictive performance. It describes calculation rather than entry, exit, or risk rules, and the stated settings should not be taken as universally suitable.

Key ideas

• KAMA varies its smoothing according to an efficiency ratio based on net movement versus cumulative absolute movement.
• The ratio is converted into a smoothing coefficient between fast and slow settings, then squared.
• Each new value blends the current close with the previous KAMA value.
• The example specifies lookback and fast and slow settings but does not establish that they suit every market.
• The material explains the indicator calculation without presenting 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.