Adaptive Moving Average (AMA, Kaufman)

The idea in plain words

When prices march steadily, you want an average that keeps up. When they zig-zag without going anywhere, you want an average that stays still and ignores the noise. The AMA measures how "efficient" the recent move was and adjusts its own speed.

How it is calculated

It compares the net move over the period (start to end) with the total distance travelled (all the ups and downs added up). A ratio near 1 means a clean trend, near 0 means noise. That ratio sets how fast the average follows the price, between a fast and a slow setting.

Efficiency ratio ER = |close − close N candles ago| ÷ (sum of |each candle's change| over N)
Speed SC = (ER × (fast − slow) + slow)²,  fast = 2÷(2+1), slow = 2÷(30+1)
AMA today = AMA yesterday + SC × (close − AMA yesterday)
Defaults: N = 9, fast 2, slow 30

How to use it

• Use it like a moving average: its direction is the trend direction.
• A flat AMA is a sign to stay out of trend trades: the market is choppy.
• Price crossing a rising AMA from above can be an exit warning.

Drawing conclusions

• The AMA turning from flat to rising often marks the start of a cleaner trend.
• Because it stays flat in noise, it gives fewer false crossings than a normal average.

Watch out for

• It can still be late at sharp turning points.
• Its flatness is a feature, not a fault: it is telling you the market is noisy.

A little history

Perry Kaufman introduced it in his 1995 book "Smarter Trading", which is why it is often called Kaufman's Adaptive Moving Average (KAMA).