Introduction
Defined by Perry Kaufman in his book “Smarter Trading”, it is a moving average with a continuously scaled smoothing factor by taking into account market direction and volatility. The smoothing factor is calculated from 2 EMA smoothing factors, a fast one and a slow one. If the market trends the value will tend to the fast ema smoothing period. If the market doesn’t trend it will move towards the slow EMA smoothing period. It is a subclass of Smoothing Moving Average, overriding once to account for the live nature of the smoothing factor. The indicator gives KAMA and envelope bands separated “perc” from it.
Indicator Type
Volatility
Formula
kama = Kaufman’s Adaptive Moving Average
top = kama * (100 + perc)/100
bottom = kama * (100 – perc)/100
How to Use
Bullish Scenario
When the stock value increases, KAMA also increases indicating a bullish scenario.
Bearish Scenario
When the stock value decrease KAMA also decreases indicating a bearish scenario.
Building on Mudrex
Strategy:-
- BUY:- KAMAenvelope(12,6,24) > KAMAenvelope(12,3,24)
- SELL:- KAMAenvelope(12,6,24) < KAMAenvelope(12,3,24)
- Time-Period:- 3H
- StopLoss:- 10%(Trailing)
Creating on Mudrex:-
Components:- We need 2 compare blocks so we can compare 2 different KAMA envelope to generate buy/sell.
For buying, we would use the following setup:-
For Selling, we would use the following strategy:-
Final Strategy:-
Testing
Running on Binance Futures: BTC/USDT with tick interval of 3H yielded an overall profit of 7.46%
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