Category: Advanced Indicator Set 1

Input parameters

Calculations

1. UpMove = IIF(Close>Close[1], Close-Close[1], 0)

2. DownMove = IIF(Close<Close[1], Abs(Close-Close[1]), 0)

3. UpMoveSum = Sum(from i=0 to Period-1) UpMove[i]

4. DownMoveSum = Sum(from i=0 to Period-1) DownMove[i]

5. CorrCoeff=Abs((UpMoveSum-DownMoveSum)/(UpMoveSum+DownMoveSum))

6. F = CorrCoeff * 2.0 / (Smoothing Period + 1.0)

7. Vidya = F * Close + (1 – F) * Vidya[1]

where:

UpMove, DownMove, UpMoveSum, DownMoveSum, CorrCoeff, and F are intermediate variables,

Close[1] is Close one bar back,

IIF(A,B,C) is B if A=True and C otherwise,

Sum is a summation operation,

Vidya[1] is Vidya one bar back.

Discussion

Suggested by Tushar Chande [1,2], the Vidya (variable index dynamic average) indicator is a modification of the traditional Exponential Moving Average (EMA) indicator. The main difference between EMA and Vidya is in the way the smoothing factor F is calculated. In EMA the smoothing factor is a constant value F=2/(period+1); in Vidya the smoothing factor is variable and depends on bar-to-bar price movements.

If the sum of the up moves is close to the sum of down moves for a period of time (no significant trend), the correction coefficient is close to zero. This translates to a smaller smoothing factor F and a longer smoothing period.

If there is a significant trend in price (the sum of the up (or down) moves greatly outweighs the sum of the down (or up) moves), the correction coefficient is close to one. This translates to a larger smoothing factor and a shorter smoothing period.

In two limit cases, when the price goes either all the way up or all the way down during Period bars, the correction coefficient equals one, and the final F matches that of EMA. In these two limit cases the Vidya indicator output equals that of EMA.

A complete discussion of the Vidya indicator and its envelope can be found in [3].

References

1. Chande, Tushar S., Adapting Moving Averages To Market Volatility, Technical Analysis of Stocks & Commodities, March 1992, v.10, no.3, p.108-114.

2. Chande, Tushar S., Identifying Powerful Breakouts Early, Technical Analysis of Stocks & Commodities, October 1995, v.13, no.10, p.418-424.

3. Marisch, Gerald, Breaking Out Of Price Channels, Technical Analysis of Stocks & Commodities, January 1998, v.16, no.1, p.50-55.