Kaufman Adaptive Moving Average: an average that changes speed

What it measures

KAMA adjusts its own smoothing constant bar by bar according to how efficiently price is moving. In a clean trend it accelerates toward price; in chop it flattens almost completely.

The efficiency ratio it uses is direction over distance: how far price travelled net, divided by how far it travelled in total. A straight line scores one, a market that ended where it started scores zero.

The result is a single line that behaves like a fast average when speed helps and a slow one when it hurts, without anyone switching settings.

How it is calculated

These are the steps Basis performs, verified against the published definition.

1. 1

   Compute the efficiency ratio: the absolute change over the period divided by the sum of the absolute bar-to-bar changes over the same period.

2. 2

   Convert the fast and slow period limits into smoothing constants.

3. 3

   Interpolate between them using the square of the efficiency ratio, so the average only speeds up when the move is genuinely directional.

4. 4

   Apply that smoothing constant to the previous KAMA value and the current price.

Settings

A ten-period efficiency window with fast and slow limits of two and thirty is the original. Widening the gap between the limits makes the adaptation more dramatic; narrowing it turns KAMA back into an ordinary average.

How to read it

• A flat KAMA through a volatile stretch is the indicator working: it is telling you the movement was not going anywhere.
• Price crossing a flat KAMA repeatedly is noise. Price crossing a sloping KAMA is a trend change.
• The slope is more informative than the crossing, because the adaptation already encodes whether the move was efficient.

Where it misleads

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