Compound Ratio Moving Average

Here is standalone version of RedK Compound Ratio Moving Average (CoRa_Wave)

Indicator have MTF, alerts, arrows and filtering options.

What is the CoRa Wave indicator?

The Compound Ratio Weighted Average (CoRa_Wave) is a moving average that assigns weights in a "logarithmically linear" manner, from the most distant data point to the current one. Its weights are calculated using a "compound ratio," starting with an initial value and adding a consistent "ratio of the cumulative prior sum" for each period. This results in uniform "step ratios" among the weights, setting it apart from linear-weighted moving averages (WMA) and exponential moving averages (EMA).

In a Weighted Moving Average (WMA) of length 5, the weights assigned from most distant to most recent are 1, 2, 3, 4, and 5, showing non-uniform ratios. The ratio between the two most distant weights is 2:1, while the ratio between the two most recent weights is 5:4. This inconsistency suggests that recent data points lack optimal weights to reduce lag. The Compound Ratio approach effectively resolves this issue.

A key benefit is the significant reduction of "tail weight," which is often large in other moving averages and contributes to lag. This method emphasizes recent data points in a consistent, reliable, and easy-to-program way.

What is the advantage of using the CoRa?

The key result is a moving average line that experiences minimal lag, irrespective of its length, and can be depended upon to accurately follow price movements and fluctuations.

Within the code, an accelerator (multiplier setting), enhances the moving average by providing additional weight to recent data points. Its influence is strongest between values of 1 and 5, after which it diminishes. A multiplier value of 0 results in a Simple Moving Average.