At its core, the FantailVMA (Variable Moving Average) is a derivative of the Exponential Moving Average (EMA): It adapts its sensitivity in response to market volatility. This adaptability is what sets the VMA apart. As volatility increases, the VMA becomes more sensitive, allowing it to more accurately reflect market dynamics. This automatic adjustment of the smoothing constant based on market volatility is a key reason why VMA functions are more effective than other moving average methods.
The calculation of the VMA involves using the Average Directional Index (ADX) formula, a critical component in measuring volatility. This inclusion of the ADX elevates the VMA above other trend-like indicators. The ADX is instrumental in assessing the overall strength of a trend, and in the context of the VMA, it assigns a "weight" to the moving average, enhancing its responsiveness to market changes.
To effectively utilize the VMA, users need to specify three key parameters: the period of the Moving Average, the period of the Variable Moving Average (which is built based on the ADX), and the period of the Average Directional Index (ADX) itself.
