Thread: Variable Moving Average - VertexFX Indicator

Variable Moving Average is a powerful VertexFX client side VTL indicator derived from the family of Adaptive / Dynamic Moving Averages which provides excellent entry and exit signals. Since adaptive Moving Averages are trend-following by nature, this indicator too is a trend following indicator.

The Variable Moving Average as the name suggests uses a variable period to determine the Moving Average. As a result it responds faster to market trends and cycles, unlike fixed period Moving Averages which responds in the same way irrespective of the market trend or cycle.

This indicator is calculated in five steps :
In the first step, we calculate the noise, which is the difference between the current close and close VMA_PERIOD ago. The absolute value of this noise is added over the recent VMA_PERIOD bars.
In the second step, we calculate the signal, which is the absolute difference between and close VMA_PERIOD ago.
In the third step, the signal-to-noise ratio (SNR) is calculated which is the ratio of the signal to noise calculated from the previous steps.
In the fourth step, we calculate the smoothed values of SNR based upon the FAST_PERIOD and SLOW_PERIOD smoothing constants.
Finally, this value is normalized back into price by smoothing it with the price of the recent VMA_PERIOD.

The main advantage of the indicator is that the period used to calculate the moving average varies dynamically. In sideways markets, the period is short because the market exhibits whipsaw pattern with short interval. As the market starts trending, the period increases because the number of bars from the recent sideways cycle keeps increasing and hence the indicator gradually calculates the Moving Average using a larger period.
When the trend changes, again the distance from the recent peak or trough decreases and hence the period decreases.

BUY - Enter BUY trade when price closes above the Variable Moving Average indicator and the indicator color turns YELLOW. Do not open position if candle opens gap-up above the indicator.
SELL - Enter SELL trade when price closes below the Variable Moving Average indicator and the indicator color turns MAGENTA. Do not open position if candle opens gap-down below the indicator.