Adaptive Moving Averages changes its sensitivity to price fluctuations.
The Adaptive Moving Average becomes more sensitive during periods when price is moving in a certain direction and becomes less sensitive to price movement when price is volatile.
The chart below of the E-mini Nasdaq 100 Futures contract shows the difference between an Exponential Moving Average (see: Exponential Moving Average) which weights current prices more heavily than past prices and the Adaptive Moving Average which changes sensitivity based on price volatility:
The advantage of the Adaptive Moving Average is show above in the e-mini chart in the center where price became directionless and choppy.
During that period the Adaptive Moving Average maintained a straight line appearance; whereas, the Exponential Moving Average moved with the choppiness of prices.
However, when price trended, like on the far right of the e-mini chart above, the Adaptive Moving Average kept up with the Exponential Moving Average.
The Adaptive Moving Average is definitely an unique technical indicator that is worth further investigation.
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