Kaufman's Adaptive Moving Average (KAMA)

What it measures:

KAMA dynamically adjusts its smoothing speed based on market volatility and efficiency (Efficiency Ratio). It speeds up during strong trending moves and flattens out during noisy, sideways consolidation.

How to interpret it:

• Flat Profile in Noise: When price moves sideways with high noise, KAMA remains flat to prevent bad trades.
• Rapid Acceleration: When price breaks out into a low-noise trend, KAMA accelerates instantly to follow price.
• Trend Confirmation: A rising KAMA confirms high-efficiency bullish trends.

Used for:

• Automated trading systems that require self-adjusting trend filters.
• Reducing whipsaws in ranging regimes while capturing strong trend breakouts.

Limitations:

• May lag at the exact moment a market transitions suddenly from low volatility to high volatility.
• More complex to parameterize than standard moving averages.