VIDYA and ATR Bands for Adaptive Trend Reversals
Summary
This trend-following system builds a Variable Index Dynamic Average (VIDYA) whose responsiveness changes with momentum measured by the Chande Momentum Oscillator. It surrounds the average with volatility bands based on average true range (ATR). A move above the upper band signals a long position, and a move below the lower band signals a short position; each new signal closes the prior opposing position and opens the new one. The published defaults include a VIDYA length of 10, momentum length of 20, and band distance factor of 2.
The document explains the intended adaptive behavior but supplies no performance statistics or comparative tests. It warns that band breaks can whipsaw in sideways markets, reversals may incur extra slippage, and results depend on parameter settings and position sizing. Although the overview discusses ATR bands as dynamic stops, the described rules and supplied source use band crossings to trigger position reversals; a separate stop-management rule is not detailed. The proposed improvements include adding a longer-term trend filter and adjusting position size to volatility.
Key ideas
- VIDYA adjusts its moving-average response using momentum measured by the Chande Momentum Oscillator.
- ATR bands around VIDYA define breakout thresholds for long and short signals.
- A signal in the opposite direction closes the current position and opens a new one.
- The document highlights whipsaw risk, slippage, position sizing, and parameter sensitivity.
- No performance evidence is provided, and a separate ATR stop rule is not specified.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.