The length of the FRAMA period, as well as the price type, can be adjusted to reflect the preference of the trader. If the price moves significantly in a particular direction, the FRAMA indicator is able to follow the price very closely, which can be quite advantageous in trending markets. If the price is moving in a narrow horizontal range and it does not make any crucial moves, the FRAMA remains flat.
FRAMA divides the price chart into smaller parts and then compares these parts with each other. In this way, we have that the price chart is a set made up of many parts, some larger and others smaller. For example, if we want to calculate the 8-day FRAMA, then this moving average analyzes these 8 days, but it also analyzes how the price acts during the first 4 days and the following 4 days.
Therefore, it can be used to avoid many false signals when you want to use a moving average crossover trading strategy. This offers the trader the ability to open a position much earlier in the market when a horizontal price channel breakout occurs. If the most recent close is above the moving average, the stock would be considered to be in an uptrend. Downtrends are defined by prices trading below the moving average.
For more, see our Moving Averages tutorial. This trend-defining property makes it possible for moving averages to generate trading signals. In its simplest application, traders buy when prices move above the moving average and sell when prices cross below that line. An approach such as this is guaranteed to put the trader on the right side of every significant trade. Unfortunately, while smoothing the data, moving averages will lag behind the market action and the trader will almost always give back a large part of their profits on even the biggest winning trades.
Exponential Moving Averages Analysts seem to like the idea of the moving average and have spent years trying to reduce the problems associated with this lag. One of these innovations is the exponential moving average EMA.
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Closer look on the Fractal Adaptive Moving Average Indicator The calculations behind the Fractal Adaptive Moving Average Indicator are based on the algorithm of the Exponential Moving Average, in which the smoothing factor is considered on the current fractal dimension of the price series. The Fractal Adaptive Moving Average has an edge in the possibility to follow strong trend movements.
On the other hand, it sufficiently slows down at the moments of price consolidation and sideways markets. When you load up the indicator in your MT4 trading platform, you will get chart similar to this: This is the settings window, with the customizable inputs: Trading rules the Fractal Adaptive Moving Average indicator These are the simplified trading rules the Fractal Adaptive Moving Average indicator: Go long when the red line crosses above the blue line — to the upside.
Go long when the red line crosses below the blue line — to the downside. Now go to the left side of your MT4 terminal. In the Navigator find the gauge name, right-click it and select Attach to the chart. A good forex indicator will most probably enhance your chance of success.
But 60 years after they wrote those words, others persist in trying to find a simple tool that would effortlessly deliver the riches of the markets. Simple Moving Averages To calculate a simple moving average , add the prices for the desired time period and divide by the number of periods selected.
If the most recent close is above the moving average, the stock would be considered to be in an uptrend. Downtrends are defined by prices trading below the moving average. For more, see our Moving Averages tutorial. This trend-defining property makes it possible for moving averages to generate trading signals. In its simplest application, traders buy when prices move above the moving average and sell when prices cross below that line. An approach such as this is guaranteed to put the trader on the right side of every significant trade.
Unfortunately, while smoothing the data, moving averages will lag behind the market action and the trader will almost always give back a large part of their profits on even the biggest winning trades.
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JForex Indicators: Fractal Adaptive Moving Average (FRAMA)
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It is based on the algorithm of the EMA, where the smoothing factor is obtained by taking into account the fractal dimension of the price series under observation. Why use a fractal adaptive moving average? But when there is increased volatility, the indicator will slow down. The indicator can pinpoint market turning points and help reduce noise from price movements.
The main advantage of the fractal adaptive moving average over the traditional moving average is that it tends to slow down when the market enters a range but quickly catch up when there is an explosive trend. This makes it rather useful to ride massive trends.
How to use a fractal adaptive moving average The fractal adaptive moving average can be found on many trading platforms, such as Tradingview, MetaTrader, and ThinkorSwim. Simply click on your indicator tab and search for it using the name. The settings can be adjusted as you wish. You can also create your own FRAMA indicator by coding it using any of the numerous online resources.
If you want the FRAMA to react very quickly to price and show individual price swings, a short period like 5 or 10 is ideal. A long period like 50 or tends to react slowly to price and is mostly used to view the long-term trend of the market. How can you use a fractal adaptive moving average? You can use the FRAMA to perform the same kinds of technical analysis you do with other moving averages. You can use it to identify the trend, note potential support and resistance levels, and even generate buy or sell signals.
If the indicator is rising and recording higher highs, the market is in an uptrend. But, when it is falling, then the market is in a downtrend. A long-period FRAMA can serve as a dynamic support or resistance level, depending on the market condition.
When the price pulls back to that level, you can look for bullish signs, such as a hammer candlestick pattern, to enter a long position. When the price rallies to the indicator line and reverses, you can enter a short position. A bearish reversal candlestick pattern, such as the shooting star can be your trade trigger.
Furthermore, by combining two FRAMA indicators, you can make use of the crossover strategy to generate signals. However, you should note that the FRAMA, just like other moving averages, may subject you to false signals when using the crossover strategy. Downtrends are defined by prices trading below the moving average. For more, see our Moving Averages tutorial.
This trend-defining property makes it possible for moving averages to generate trading signals. In its simplest application, traders buy when prices move above the moving average and sell when prices cross below that line. An approach such as this is guaranteed to put the trader on the right side of every significant trade. Unfortunately, while smoothing the data, moving averages will lag behind the market action and the trader will almost always give back a large part of their profits on even the biggest winning trades.
Exponential Moving Averages Analysts seem to like the idea of the moving average and have spent years trying to reduce the problems associated with this lag. One of these innovations is the exponential moving average EMA. This approach assigns a relatively higher weighting to recent data, and as a result it stays closer to the price action than a simple moving average.
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