A brand new Moving Average, calculated using Momentum, Acceleration and Probability (Psychological Effect).
Momentum adjusted Moving Average( MaMA ) is an indicator that measures Price Action by taking into consideration not only Price movements but also its Momentum, Acceleration and Probability. MaMA , provides faster responses comparing to the regular Moving Average
Here is the math of the MaMA idea
Momentum measures change in price over a specified time period
momentum = source – source(length) where, source, indicates current bar’s price value source(length), indicates historical price value of length bars earlier
Lets play with this formula and rewrite it by moving source(length) to other side of the equation
source = source(length) + momentum
to avoid confusion let’s call the source that we aim to predict as adjustedSource
adjustedSource = source(length) + momentum
looks nice the next value of source simply can be calculated by summing of historical value of the source value and value of the momentum. I wish it was so easy, the formula holds true only when the momentum is conserved/constant/steady but momentum move up or down with the price fluctuations (accelerating or decelerating)
Let’s add acceleration effects on our formula, where acceleration is change in momentum for a given length. Then the formula will become as (skipped proof part of acceleration effects, you may google for further details)
here again the formula holds true when the acceleration is constant and once again it is not the case for trading, acceleration also changes with the price fluctuations
Then, how we can benefit from all of this, it has value yet requires additional approaches for better outcome
Let’s simulate behaviour with some predictive approach such as using probability (also known as psychological effect), where probability is a measure for calculating the chances or the possibilities of the occurrence of a random event. As stated earlier above momentum and acceleration are changing with the price fluctuations, by using the probability approach we can add a predictive skill to determine the likelihood of momentum and acceleration changes (remember it is a predictive approach). With this approach, our equations can be expresses as follows
adjustedSource = source(length) + momentum * probability adjustedSource = source(length) + ( momentum + 1/2 * acceleration ) * probability , with acceleration effect
Finally, we plot MaMA with the new predicted source adjustedSource, applying acceleration effect is made settable by the used from the dialog box, default value is true.
What to look for: • Trend Identification • Support and Resistance • Price Crossovers
Recommended settings are applied as default settings, if you wish to change the length of the MaMA then you should also adjust length of Momentum (and/or Probability). For example for faster moving average such as 21 period it would be suggested to set momentum length to 13 Alternative usage, set moving average length to 1 and keep rest lengths with default values, it will produce a predictive price line based on momentum and probability. Experience acceleration factor by enabling and disabling it
Conclusion
MaMA provide an added level of confidence to a trading strategy and yet it is important to always be aware that it implements a predictive approach in a chaotic market use with caution just like with any indicator
Trading success is all about following your trading strategy and the indicators should fit within your trading strategy, and not to be traded upon solely
Disclaimer: The script is for informational and educational purposes only. Use of the script does not constitutes professional and/or financial advice. You alone the sole responsibility of evaluating the script output and risks associated with the use of the script. In exchange for using the script, you agree not to hold dgtrd TradingView user liable for any possible claim for damages arising from any decision you make based on use of the script
It is Uncanny how you can filter out noise the MESA is late in turning and so helpful in identifying high probability trades!
Thanks again 👍
dgtrd
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@alagh,
momentum is both causing to accelerate and turning late.
but still assuming its length value its reactions is faster to standart ema or sma.
have you been able to check the feedback bands, they may add additional insghit (you may need to decrese the value if you are on forex or stock, default one are better for crypto)
i will invite you the check LEMA, much more resopnsive to fast change in the market
@dgtrd,
I would love to check the LEMA..
The band's I assumed are for daily charts..I am more of a 30min- hourly chart trader!
I will decrease the period of feedback bands as suggested.
Thanks a lot for the quality inputs.
ratheeshjaganath
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Hello Sir..Many thanks for this wonderful indicator. It is showing proper entry point but I do not know how to set the exit and stop loss. I want to use this in Indian Market..I am an Indian working in Nigeria. I will be very grateful if you can help me with the proper setting for swing trading please..Hope my request will be considered Sir.
Thanks for the indicator, can MaMA work with Heikin Ashi because according to the result of the back-test is more accurate and profitable.
dgtrd
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hello @aziz2k, you may use MaMA indicator part with Heikin-Ashi candles but the backtest statistical calculation is not compatable with Heikin-Ashi candles. Pleasse check how the OHLC values are calculated with Heikin-Ashi