### Introduction

Kaufman’s Adaptive Moving Average is an intelligent moving average tool developed on the EMA, which is responsive to trend volatility. It follows the prices when the price fluctuations are insignificant, and the noise is low.

Volatility

#### Formula:-

Kaufman is represented by:- KAMA(T1, T2, T3)

1. T1 is the number of Efficiency Ratio(ER)
2. T2 is the number of periods for the fastest EMA constant.
3. T3 is the number of periods for the slowest EMA constant.
• ER = Change/Volatility
• Change = ABS(Close – Close (10 periods ago))
• Volatility = Sum10(ABS(Close – Prior Close))
• SC = [ER x (fastest SC – slowest SC) + slowest SC]2

Current KAMA = Prior KAMA + SC x (Price – Prior KAMA)

*Volatility is the sum of the absolute value of the last ten price changes (Close – Prior Close).

*The smoothing constant uses the ER and two smoothing constants based on an exponential moving average.

### How To Use

#### Bullish Scenario

When the stock value increases, KAMA also increases indicating a bullish scenario.

#### Bearish Scenario

When the stock value decrease KAMA also decreases indicating a bearish scenario.

## Building on Mudrex

To generate Buy/Sell signals two KAMA’s are compared with different Fastest time-period as the bigger fastest time period will show broader price volatility whereas the shorter fastest time-period will be for the more recent fluctuation. Thus, buying will be considered when longer time-perio crosses the shorter and vice-versa.

### Strategy:-

• BUY:- KAMA(12,6,24) > KAMA(12,3,24) OR EMA(9) > KAMA(15,5,30)
• SELL:- KAMA(12,6,24) < KAMA(12,3,24) OR EMA(9) < KAMA(15,5,30)
• Timeframe:- 3H
• Stop Loss:- 10%(Trailing)

#### Creating on Mudrex

Components:- To build the following strategy we will need 4 total compare blocks, i.e. 2 for buying and 2 for selling.

For buying, we will use the next 2 steps:-

For selling we will use the next 2 steps :-