Variable Moving Average (VMA)

This is an exponential moving average, which can automatically adjust itself to the volatility of the market.

Why should I use it?

A moving average is a major tool in Technical Analysis; however, since it is after all an average calculated from past data, it has sometimes difficulty to apply its qualities when the conditions in the market change the degree of volatility.
The Variable Moving Average is able to detect and adjust its smoothness together with the change in the volatility of the market.
Therefore, it can perform better in ranging periods and highly volatile periods, when typical moving averages readings become less accurate.
Remember that there are a lot of factors that can increase or lower the degree of volatility in the market, for instance an important news event at a specific date and time can create high volatility, while late at night (GMT time) volatility can be very low.

How does it look like?

The VMA looks just like a Simple Moving Average, that is, a single line on the chart which indicates an average price for each period.

How does it work?

The more volatile the market is, the more smoothing is used for the calculation and the greater the weight is given to the current data. This means that in periods of high volatility the VMA will get more sensitive compared to periods of low volatility - allowing the Variable Moving Average to respond quicker when needed, or slower when needed.

Example

Below is a daily USD/JPY chart with two moving average lines, an exponential moving average (red) and the Variable Moving Average (blue). Notice how the VMA is quicker to respond to periods of high volatility in comparison to the EMA, see for instance the very volatile down move around Oct 24.