Volatility dependent moving average

A volatility dependent moving average is a technical indicator to identify the trend and to generate buy and sell signals. A volatility dependent moving average is a moving average that puts more weight on share prices when there is high volatility and places less weight on share prices when there is lower volatility.

A volatility dependent moving average is less sensitive when there is a high volatility compared to when there is lower volatility. Volatility is the size of price fluctuations in the share price, both up and down. A volatility dependent moving average can be calculated for different time periods, a volatility dependent moving average can be calculated for 10 days, 20 days or 200 days for example.

Volatility dependent moving average: EGMn - 1 + (D / V) * 2 * (X - EGMn - 1)

where:
EGMn - 1 = yesterdays exponential moving average
X = share price today
D = share price today - share price yesterday
V = sum of D for all observations in the volatility dependent moving average

A volatility dependent moving average that is calculated for more days than another volatility dependent moving average is less sensitive to stock price changes. A volatility dependent moving average is recalculated every day.

A volatility dependent moving average can be used to generate buy and sell signals. If one calculates a longer volatility dependent moving average and a shorter volatility dependent moving average, a buy signal or a sell signal is triggered when the shorter volatility dependent moving average cuts through the longer volatility dependent moving average. The trend can be identified by the direction of the volatility dependent moving average.