|Variable Moving Average|
A variable moving average is an exponential moving average that automatically adjusts the smoothing percentage based on the volatility of the data series. The more volatile the data, the more sensitive the smoothing constant used in the moving average calculation. Sensitivity is increased by giving more weight given to the current data.
During trading ranges (when prices move sideways in a narrow range) shorter term moving averages tend to produce numerous false signals. In trending markets (when prices move up or down over an extended period) longer-term moving averages are slow to react to reversals in trend. By automatically adjusting the smoothing constant, a variable moving average is able to adjust its sensitivity, allowing it to perform better in both types of markets.