Kaufman’s ( ) was developed by American quantitative financial theorist Perry J. Kaufman in 1998. The technique began in 1972 but Kaufman officially presented it to the public much later through his book, “Trading Systems and Methods.” Unlike other moving averages, Kaufman’s accounts not only for price action but also for market . is a moving average that takes into account market noise or . will closely track prices when price fluctuations are relatively small and noise is low. will adapt to increasing price fluctuations and track prices from a greater distance. This trend following indicator can be used to identify the overall trend, time turning points and to filter price movements.
You can use like any other trend-following indicator, such as a moving average. You can look for price crosses, directional changes and filtered signals. First, a cross above or below indicates directional changes in prices. As with any moving average, a simple crossover system will generate lots of signals and lots of whipsaws. Second, You can use the direction of to define the overall trend for a security. This may require a parameter adjustment to smooth the indicator further. You can change the fastline and slowline parameters to smooth and look for directional changes. The trend is down as long as is falling and forging lower lows. The trend is up as long as is rising and forging higher highs. Finally, You can combine signals and techniques. You can use a longer-term to define the bigger trend and a shorter-term for trading signals.
I have included in the indicator an input named "EnableSmooth" that allows you to determine if the line should be smoothed or not. A "True" as the input value smoothes the calculation. An "False" simply plots the raw line. When market is low, Kaufman’s remains near the current market price, but when increases, it will lag behind. What the indicator aims to do is filter out “market noise” – insignificant, temporary surges in price action. One of the primary weaknesses of traditional moving averages is that when used for trading signals, they tend to generate many false signals. The indicator seeks to lessen this tendency – generate fewer false signals – by not responding to short-term, insignificant price movements. Traders generally use the moving average indicator to identify market trends and reversals.
AMAValF --> Fast Line.
AMAValS --> Slow Line.
This is a Level 2 free and open source indicator.
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