TASC 2022.03 Relative Strength Volatility-Adjusted EMA

13 févr. 2022

█ OVERVIEW

TASC's March 2022 edition of Traders' Tips includes the "Relative Strength Moving Averages - Part 3: The Relative Strength Volatility-Adjusted Exponential Moving Average" article authored by Vitali ​Apirine. This is the code that implements the "RS VolatAdj EMA" from the article.


█ CONCEPTS

In a three-part article series, Vitaly Apirine examines ways to filter price movements and define turning points by applying the Relative Strength concept to exponential moving averages. The resulting indicator is more responsive and is intended to account for the relative strength of volatility.


█ CALCULATIONS

The calculation process uses the following steps:

• Select an appropriate volatility index (in our case it is VIX).
  
• Calculate up day volatility (UV) smoothed by a 10-day EMA.
  
• Calculate down day volatility (DV) smoothed by a 10-day EMA.
  
• Take the absolute value of the difference between UV and DV and divide by the sum of UV and DV. This is the Volatility Strength we need.
  
• Calculate a MLTP constant - the weighting multiplier for an exponential moving average.
  
• Combine Volatility Strength and MLTP to create an exponential moving average on current price data.
  

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