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Using an Adaptive SMA and Standard SMA Cross to Identify Trends

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Summary

The document describes an adaptive simple moving average intended to respond more quickly than a standard SMA. Because an SMA uses whole-bar periods, adapting its period can produce abrupt slope changes; treating each slope change as a trading signal may lead to frequent reversals in direction. The proposed alternative is to compare the adaptive SMA with a regular SMA and use their crosses as a trend criterion.

The indicator allows color changes to reflect either a slope change or a cross between the two averages, and it also presents adaptive-average color changes as possible trend-change signals. The explanation offers no parameter values, backtest results, or market-specific evidence, and it does not define entry, exit, or risk rules. The method is a technical indicator concept that would need testing for noise and robustness before use.

Key ideas

  • The adaptive SMA is designed to react faster than a standard SMA.
  • Adapting an SMA can create abrupt slope shifts because its period is based on whole bars.
  • The document proposes crosses between adaptive and standard SMAs as a trend criterion.
  • Color changes can represent either slope changes or cross-based trend changes.

Tags

Technical indicatorsTrend followingBacktesting

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