Kaufman's Adaptive Moving Average (KAMA)

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technical_indicators:kaufman_s_adaptive_moving_average [2019/06/24 19:39]
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technical_indicators:kaufman_s_adaptive_moving_average [2023/11/28 17:55] (current)
jayanthi [Introduction]
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 ====== Kaufman'​s Adaptive Moving Average (KAMA) ====== ====== Kaufman'​s Adaptive Moving Average (KAMA) ======
  
-===== Introduction ​=====+===== What Is Kaufman'​s Adaptive Moving Average? ​=====
  
-Developed by Perry Kaufman, Kaufman'​s Adaptive Moving Average (KAMA) is a moving average designed to account for market noise or volatility. KAMA will closely follow prices when the price swings are relatively small and the noise is low. KAMA will adjust when the price swings widen and follow prices from a greater distance. This trend-following indicator can be used to identify the overall trend, time turning points and filter price movements. ​ +Developed by Perry Kaufman, Kaufman'​s Adaptive Moving Average (KAMA) is a moving average designed to account for market noise or volatility. KAMA will closely follow prices when the price swings are relatively smalland the noise is low. KAMA will adjust when the price swings widen and follow prices from a greater distance. This trend-following indicator can identify the overall trend, time turning points and filter price movements. ​
  
-===== Calculation =====+{{:​technical_indicators:​kaufman_s_adaptive_moving_average:​kama-intro.png}}\\ 
 +[[https://​stockcharts.com/​h-sc/​ui?​s=AAPL&p=D&b=5&g=0&id=p31748847286&​a=960365955|Click here for a live version of this chart.]]
  
 +===== KAMA Calculation =====
 +
 +==== Formulas ====
 There are several steps required to calculate Kaufman'​s Adaptive Moving Average. Let's first start with the settings recommended by Perry Kaufman: KAMA(10,​2,​30). ​ There are several steps required to calculate Kaufman'​s Adaptive Moving Average. Let's first start with the settings recommended by Perry Kaufman: KAMA(10,​2,​30). ​
  
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   * 30 is the number of periods for the slowest EMA constant. ​   * 30 is the number of periods for the slowest EMA constant. ​
  
-Before calculating KAMA, we need to calculate the Efficiency Ratio (ER) and the Smoothing Constant (SC). Breaking down the formula into bite-size nuggets makes it easier to understand the methodology behind the indicator. Note that ABS stands for Absolute Value+Before calculating KAMA, we need to calculate the Efficiency Ratio (ER) and the Smoothing Constant (SC). Breaking down the formula into bite-size nuggets makes it easier to understand the methodology behind the indicator. ​
  
-===Efficiency Ratio (ER) ==== +=== Step 1: Efficiency Ratio (ER) === 
  
 The ER is basically the price change adjusted for the daily volatility. The ER is basically the price change adjusted for the daily volatility.
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 </​code>​ </​code>​
 +
 +Note: ABS stands for Absolute Value. ​
 +
  
 In statistical terms, the Efficiency Ratio tells us the fractal efficiency of price changes. ER fluctuates between 1 and 0, but these extremes are the exception, not the norm. ER would be 1 if prices moved up 10 consecutive periods or down 10 consecutive periods. ER would be zero if price is unchanged over the 10 periods. ​ In statistical terms, the Efficiency Ratio tells us the fractal efficiency of price changes. ER fluctuates between 1 and 0, but these extremes are the exception, not the norm. ER would be 1 if prices moved up 10 consecutive periods or down 10 consecutive periods. ER would be zero if price is unchanged over the 10 periods. ​
  
-===Smoothing Constant (SC) ====+=== Step 2: Smoothing Constant (SC) ===
  
 The smoothing constant uses the ER and two smoothing constants based on an exponential moving average. ​ The smoothing constant uses the ER and two smoothing constants based on an exponential moving average. ​
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 As you may have noticed, the Smoothing Constant is using the smoothing constants for an exponential moving average in its formula. (2/30+1) is the smoothing constant for a 30-period EMA. The Fastest SC is the smoothing constant for shorter EMA (2-periods). The slowest SC is the smoothing constant for the slowest EMA (30-periods). Note that the "​2"​ at the end is to square the equation. ​ As you may have noticed, the Smoothing Constant is using the smoothing constants for an exponential moving average in its formula. (2/30+1) is the smoothing constant for a 30-period EMA. The Fastest SC is the smoothing constant for shorter EMA (2-periods). The slowest SC is the smoothing constant for the slowest EMA (30-periods). Note that the "​2"​ at the end is to square the equation. ​
  
-===KAMA ====+=== Step 3: KAMA ===
  
 With the Efficiency Ratio (ER) and Smoothing Constant (SC), we are now ready to calculate Kaufman'​s Adaptive Moving Average (KAMA). Since we need an initial value to start the calculation,​ the first KAMA is just a simple moving average. The following calculations are based on the formula below. ​ With the Efficiency Ratio (ER) and Smoothing Constant (SC), we are now ready to calculate Kaufman'​s Adaptive Moving Average (KAMA). Since we need an initial value to start the calculation,​ the first KAMA is just a simple moving average. The following calculations are based on the formula below. ​
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 </​code>​ </​code>​
  
-===== Calculation Example/​Chart ​=====+==== Calculation Example/​Chart ====
  
 The images below show a screenshot from an Excel spreadsheet used to calculate KAMA and the corresponding QQQ chart. ​ The images below show a screenshot from an Excel spreadsheet used to calculate KAMA and the corresponding QQQ chart. ​
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 {{:​technical_indicators:​kaufman_s_adaptive_moving_average:​cs-kama.xls?​linkonly|Click here to download}} this spreadsheet example. {{:​technical_indicators:​kaufman_s_adaptive_moving_average:​cs-kama.xls?​linkonly|Click here to download}} this spreadsheet example.
  
-===== Usage and Signals ​=====+===== Interpreting KAMA =====
  
-Chartists can use KAMA like any other trend following indicator, such as a moving average. Chartists can look for price crosses, directional changes and filtered signals. ​+Chartists can use KAMA like any other trend-following indicator, such as a moving average. Chartists can look for price crosses, directional changes and filtered signals. ​
  
 First, a cross above or below KAMA indicates directional changes in prices. As with any moving average, a simple crossover system will generate lots of signals and lots of whipsaws. Chartists can reduce whipsaws by applying a price or time filter to the crossovers. One might require price to hold the cross for a set number of days or require the cross to exceed KAMA by a set percentage. ​ First, a cross above or below KAMA indicates directional changes in prices. As with any moving average, a simple crossover system will generate lots of signals and lots of whipsaws. Chartists can reduce whipsaws by applying a price or time filter to the crossovers. One might require price to hold the cross for a set number of days or require the cross to exceed KAMA by a set percentage. ​
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 {{:​technical_indicators:​kaufman_s_adaptive_moving_average:​kama-4-mmmfilter.png|KAMA Chart}} {{:​technical_indicators:​kaufman_s_adaptive_moving_average:​kama-4-mmmfilter.png|KAMA Chart}}
  
 +===== Charting with KAMA =====
  
-===== Using with SharpCharts ​=====+The KAMA overlay can be added to SharpCharts and ACP Charts. 
 + 
 +==== Using with SharpCharts ====
  
 KAMA can be found as an indicator overlay in the SharpCharts workbench. The default settings will automatically appear in the parameter box once it is selected and chartists can change these parameters to suit their analytical needs. The first parameter is for the Efficiency Ratio and chartists should refrain from increasing this number. Instead, chartists can decrease it to increase sensitivity. Chartists looking to smooth KAMA for longer-term trend analysis can increase the middle parameter incrementally. Even though the difference is just 3, KAMA(10,​5,​30) is significantly smoother than KAMA(10,​2,​30). ​ KAMA can be found as an indicator overlay in the SharpCharts workbench. The default settings will automatically appear in the parameter box once it is selected and chartists can change these parameters to suit their analytical needs. The first parameter is for the Efficiency Ratio and chartists should refrain from increasing this number. Instead, chartists can decrease it to increase sensitivity. Chartists looking to smooth KAMA for longer-term trend analysis can increase the middle parameter incrementally. Even though the difference is just 3, KAMA(10,​5,​30) is significantly smoother than KAMA(10,​2,​30). ​
  
-{{:​technical_indicators:​kaufman_s_adaptive_moving_average:​kama-5-spyshch.png|KAMA Chart}}\\ +{{:​technical_indicators:​kaufman_s_adaptive_moving_average:​kama-shch.png}}\\ 
-[[https://​stockcharts.com/​h-sc/​ui?​s=SPY&​p=D&​yr=0&mn=6&dy=0&id=p71426978293|Click here for a live version of the chart.]]+[[https://​stockcharts.com/​h-sc/​ui?​s=QQQ&​p=D&​b=5&g=0&id=p65318765382&​a=960366445|Click here for a live version of the chart.]] 
 + 
 +For more details on the parameters used to configure KAMA overlays, please see our [[https://​support.stockcharts.com/​doku.php?​id=sharpcharts:​reference#​kaufman_s_adaptive_moving_average_kama|SharpCharts Parameter Reference]] in the Support Center.  
 + 
 +==== Using with StockChartsACP ==== 
 + 
 +This overlay can be added from the Chart Settings panel for your StockChartsACP chart. KAMA can be overlaid on the security'​s price plot or on an indicator panel. 
 + 
 +{{:​technical_indicators:​kaufman_s_adaptive_moving_average:​kama-acp.png}}\\ 
 +[[https://​schrts.co/​GBnndRph|Click here for a live version of this chart.]] 
 + 
 +By default, the overlay uses 2-period and 30-period EMAs, plus 10 periods for the Efficiency Ratio. These parameters can be adjusted to meet your technical analysis needs. 
 + 
 + 
 +===== Scanning for KAMA ===== 
 + 
 +StockCharts members can screen for stocks based on KAMA values. Below are some example scans that can be used for KAMA-based signals. Simply copy the scan text and paste it into the Scan Criteria box in the [[https://​stockcharts.com/​def/​servlet/​ScanUI|Advanced Scan Workbench]].
  
-===== Suggested Scans =====+Members can also set up alerts to notify them when a KAMA-based signal is triggered for a stock. Alerts use the same syntax as scans, so the sample scans below can be used as a starting point for setting up alerts as well. Simply copy the scan text and paste it into the Alert Criteria box in the [[https://​stockcharts.com/​h-al/​al|Technical Alert Workbench]].
  
 ==== Overall Uptrend with Price Crossing Above KAMA ==== ==== Overall Uptrend with Price Crossing Above KAMA ====
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 </​code>​ </​code>​
  
-For more details on the syntax to use for KAMA scans, please see our [[docs>scans:​indicators#​kaufman_s_adaptive_moving_average_kama|Scanning Indicator Reference]] in the Support Center.+For more details on the syntax to use for KAMA scans, please see our [[https://​support.stockcharts.com/​doku.php?​id=scans:​indicators#​kaufman_s_adaptive_moving_average_kama|Scanning Indicator Reference]] in the Support Center.
  
-===== Further Study =====+===== Additional Resources ​=====
  
-From the creator of the KAMA indicator, Perry Kaufman, //Trading Systems and Methods// offers detailed information on indicators, programs, algorithms, and systems, including details on KAMA and other moving average systems. ​ 
- 
-|**Trading Systems and Methods** \\ Perry Kaufman | 
-|  [[https://​store.stockcharts.com/​products/​new-trading-systems-and-methods-5th-edition|{{:​technical_indicators:​kaufman_s_adaptive_moving_average:​store_kaufman_tradingsystemsandmethods.png}}]] ​ | 
-|  [[https://​store.stockcharts.com/​products/​new-trading-systems-and-methods-5th-edition|{{:​store:​buynowbuttone.jpg?​nolink&​}}]] ​ | 
- 
-===== Additional Resources ===== 
 ==== Stocks & Commodities Magazine Articles ==== ==== Stocks & Commodities Magazine Articles ====
 **[[https://​technical.traders.com/​archive/​articlefinal.asp?​file=\V13\C06\SIDEADA.pdf|Perry Kaufman interview with Thom Hartle]]** \\ **[[https://​technical.traders.com/​archive/​articlefinal.asp?​file=\V13\C06\SIDEADA.pdf|Perry Kaufman interview with Thom Hartle]]** \\
 May 1995 - Stocks & Commodities May 1995 - Stocks & Commodities