OPEN-SOURCE SCRIPT
Volatility Exponential Moving Average
VEMA is a custom indicator that enhances the traditional moving average by incorporating market volatility. Unlike standard moving averages that rely solely on price, VEMA integrates both the Simple Moving Average (SMA) and the Exponential Moving Average (EMA) of the closing price, alongside a measure of market volatility.
The unique aspect of VEMA is its approach. It calculates the standard deviation of the closing price and also computes the simple moving average of this volatility. This dual approach to understanding market fluctuations allows for a more nuanced understanding of market dynamics.
Key to VEMA's functionality is the dynamic weighting factor, which adjusts the influence of SMA and EMA based on current market volatility. This factor increases the weight of the EMA, which is more responsive to recent price changes, during periods of high volatility. Conversely, during periods of lower volatility, the SMA, which offers a smoother view of price trends, becomes more prominent.
The resultant is a hybrid moving average that responds adaptively to changes in market volatility. This adaptability makes VEMA particularly useful in dynamic markets, potentially offering more insightful trend analysis and reversal signals compared to traditional moving averages.
The unique aspect of VEMA is its approach. It calculates the standard deviation of the closing price and also computes the simple moving average of this volatility. This dual approach to understanding market fluctuations allows for a more nuanced understanding of market dynamics.
Key to VEMA's functionality is the dynamic weighting factor, which adjusts the influence of SMA and EMA based on current market volatility. This factor increases the weight of the EMA, which is more responsive to recent price changes, during periods of high volatility. Conversely, during periods of lower volatility, the SMA, which offers a smoother view of price trends, becomes more prominent.
The resultant is a hybrid moving average that responds adaptively to changes in market volatility. This adaptability makes VEMA particularly useful in dynamic markets, potentially offering more insightful trend analysis and reversal signals compared to traditional moving averages.
Open-source script
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in publication is governed by House rules. You can favorite it to use it on a chart.
Want to use this script on a chart?
KP
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.