VIDYA
Upgraded vidya that uses Chandes momentum for adapting
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Chande's Variable Index Dynamic Average (VIDYA) Chande's Variable Index Dynamic Average (VIDYA) is similar to the Exponential Moving Average (
EMA) but automatically adjusts the smoothing weight based on the volatility of the prices.
VIDYA was developed by Tushar Chande and presented in March, 1992 in "Technical Analysis of Stocks & Commodities" magazine. In the first version, a standard deviation was used as the Volatility Index. In October, 1995 Chande modified VIDYA to use a new Chande Momentum Oscillator (CMO) as the Volatility Index.
Formula VIDYA is calculated by the formula:
Where: F is a smoothing factor calculated by the formula: is a number of periods for Exponential Moving Average (
EMA); is the absolute current value of Chande Momentum Oscillator (CMO); is the value of VIDYA in the previous period. Usage Usually not VIDYA itself is used in trading, but its upper and lower borders (bands), that are by N% above and below VIDYA.
Hint: in Marketscope, to plot upper and lower bands of VIDYA, use the Shift indicator. Please read Shifting Indicator in Marketscope.
Trend Identification VIDYA can be used to identify the market trend:
- When the market price breaks through the upper band of VIDYA, this may indicate the beginning of an uptrend.
- When the market price breaks through the lower band of VIDYA, this may indicate the beginning of a downtrend.
Buy and Sell Signals VIDYA generates buy and sell signals when the price crosses over and under the bands:
- When the price crosses over the upper band of VIDYA, this can be interpreted as a signal to buy.
- When the price crosses under the lower band of VIDYA, this can be interpreted as a signal to sell.