Trend indicators
FrAMA: Fractal Adaptive Moving Average
A moving average that adapts its speed to how "rough" or "smooth" the recent price path looks.
The idea in plain words
A trending market draws a fairly straight path; a choppy one draws a jagged, space-filling path. FrAMA measures this roughness (its "fractal dimension") and follows the price quickly when the path is straight and slowly when it is jagged.
How it is calculated
It compares the price range of the first half of the window, the second half and the whole window. If the whole range is about the sum of the halves, the path is straight (trend); if it is much smaller, the path doubled back (noise). That sets the speed of an exponential average.
N1 = range of first half ÷ half length, N2 = range of second half ÷ half length
N3 = range of whole window ÷ window length
D = (log(N1 + N2) − log(N3)) ÷ log(2)
speed a = exp(−4.6 × (D − 1)), kept between 0.01 and 1
FrAMA today = a × price + (1 − a) × FrAMA yesterdayHow to use it
- Use it as a trend line that stays put in sideways markets and moves fast in trends.
- Price crossing a flat FrAMA is less meaningful than crossing a sloping one.
Drawing conclusions
- A sudden tilt in a previously flat FrAMA often marks a breakout.
Example
On a 4-hour chart, FrAMA hugs the price during a clean three-day rally, then goes almost flat during the choppy pause that follows.
Prices in examples are illustrative.
Watch out for
- It can jump when the volatility pattern changes abruptly.
A little history
John Ehlers described FrAMA in Technical Analysis of Stocks & Commodities in 2005, applying fractal geometry ideas made popular by Benoit Mandelbrot.
Educational content only. No indicator or pattern predicts the future, and nothing here is investment advice.