Momentum adjusted Moving Average by DGT

A brand new Moving Average, calculated using Momentum, Acceleration and Probability (Psychological Effect).

Momentum adjusted Moving Average( MaMA ) is an indicator that measures Price Action by taking into consideration not only Price movements but also its Momentum, Acceleration and Probability. MaMA , provides faster responses comparing to the regular Moving Average

Here is the math of the MaMA idea

Momentum measures change in price over a specified time period

momentum = source – source(length)
where,
source, indicates current bar’s price value
source(length), indicates historical price value of length bars earlier

Lets play with this formula and rewrite it by moving source(length) to other side of the equation

source = source(length) + momentum

to avoid confusion let’s call the source that we aim to predict as adjustedSource

adjustedSource = source(length) + momentum


looks nice the next value of source simply can be calculated by summing of historical value of the source value and value of the momentum. I wish it was so easy, the formula holds true only when the momentum is conserved/constant/steady but momentum move up or down with the price fluctuations (accelerating or decelerating)

Let’s add acceleration effects on our formula, where acceleration is change in momentum for a given length. Then the formula will become as (skipped proof part of acceleration effects, you may google for further details)

adjustedSource = source(length) + momentum + 1/2 * acceleration

here again the formula holds true when the acceleration is constant and once again it is not the case for trading, acceleration also changes with the price fluctuations

Then, how we can benefit from all of this, it has value yet requires additional approaches for better outcome

Let’s simulate behaviour with some predictive approach such as using probability (also known as psychological effect), where probability is a measure for calculating the chances or the possibilities of the occurrence of a random event. As stated earlier above momentum and acceleration are changing with the price fluctuations, by using the probability approach we can add a predictive skill to determine the likelihood of momentum and acceleration changes (remember it is a predictive approach). With this approach, our equations can be expresses as follows

adjustedSource = source(length) + momentum * probability
adjustedSource = source(length) + ( momentum + 1/2 * acceleration ) * probability , with acceleration effect

Finally, we plot MaMA with the new predicted source adjustedSource, applying acceleration effect is made settable by the used from the dialog box, default value is true.

What to look for:
• Trend Identification
• Support and Resistance
• Price Crossovers

Recommended settings are applied as default settings, if you wish to change the length of the MaMA then you should also adjust length of Momentum (and/or Probability). For example for faster moving average such as 21 period it would be suggested to set momentum length to 13
Alternative usage, set moving average length to 1 and keep rest lengths with default values, it will produce a predictive price line based on momentum and probability. Experience acceleration factor by enabling and disabling it

Conclusion

MaMA provide an added level of confidence to a trading strategy and yet it is important to always be aware that it implements a predictive approach in a chaotic market use with caution just like with any indicator

Trading success is all about following your trading strategy and the indicators should fit within your trading strategy, and not to be traded upon solely

Disclaimer: The script is for informational and educational purposes only. Use of the script does not constitutes professional and/or financial advice. You alone the sole responsibility of evaluating the script output and risks associated with the use of the script. In exchange for using the script, you agree not to hold dgtrd TradingView user liable for any possible claim for damages arising from any decision you make based on use of the script

Catatan Rilis: This update introduces an experimental application of feedback concept common in Electronic Engineering, attempting to present additional value/insight to the Indicator

Feedback concept in Electronic Engineering
Negative feedback (or balancing feedback) is applied to reduce the fluctuations, whether caused by changes in the source or by other disturbances. The applied negative feedback can improve performance, gain stability, linearity and reduce sensitivity to parameter variations due to environment.
Whereas positive feedback tends to lead to instability via exponential growth, oscillation or chaotic behaviour

mainly all testing is performed with crypto market, others sometimes requires to reduce feedback multiplier

Detailed explanation and calculation approach can be found in the description of "Rate of Return (RoR) by DGT"

Catatan Rilis: backtest ability added for price crosses above or below MaMA line

optimization can be performed with available settable variables

Catatan Rilis: alert condition added

Catatan Rilis: Enable Non-Repaint Version option added

Catatan Rilis: exit price calculation error fixed when stop loss condition meets

many many thanks for you highly valuable comments @sotiri 🙏

Catatan Rilis: removed "Enable Non-repaint Vertion" option and made Alerts and BackTest Non-Repaint