In praise of the FRAMA: a study with SPX futures
A brief note in praise of the Fractal Adaptive Moving Average (FRAMA) devised by Ehlers and implemented by lazybear. The motivation behind the indicator is a moving average with a "sensitive" (ie, non-constant) window. In reality, this is achieved (or, one might say, is approximated) by an EMA with a variable alpha given as e^-4.6*(D-1) where D, whose value ranges from 1 to 2, is a "fractal dimension" of the price action. You can read the full documentation here.
But you don't need to be a mathematician to see how powerful this indicator is. Just from this example one might imagine a dead simple long strategy of buying when the slope of the FRAMA is greater than some parameter (say .25 for sake of argument) and selling when it goes negative, or a short strategy of shorting when the slope is less than -1*the parameter then closing the position when it goes positive. Looks like it passes the eye test, but I need to run some tests.
But you don't need to be a mathematician to see how powerful this indicator is. Just from this example one might imagine a dead simple long strategy of buying when the slope of the FRAMA is greater than some parameter (say .25 for sake of argument) and selling when it goes negative, or a short strategy of shorting when the slope is less than -1*the parameter then closing the position when it goes positive. Looks like it passes the eye test, but I need to run some tests.
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