Chande’s Variable Index Dynamic Average (VIDYA) is similar to the Exponential Moving Average (EMA), but automatically adjusts the smoothing weight based on price volatility. VIDYA was developed by Tushar Chande and presented in Technical Analysis of Stocks & Commodities magazine in March 1992.
What is the Vidya Indicator?
The calculation of the VIDYA indicator is analogous to that of the Exponential Moving Average (EMA) with a dynamically adjusted lookback period that depends on relative price volatility. The higher the volatility, the higher the emphasis on price becomes and the faster VIDYA adapts to price changes. Volatility is measured through the Chande Momentum Oscillator (CMO).
This indicator can be used as any moving average, to identify and trade trends. Traders often use it in combination with other signals and analysis techniques.
The Vidya Indicator is a popular tool among forex traders due to its ability to accurately identify and follow trends in the market. The Vidya Indicator provides a comprehensive overview of market conditions and can help traders make informed decisions about when to enter and exit positions.
The Vidya Indicator is easy to use and can be applied to any time frame, making it suitable for both short-term and long-term traders. It is also customizable, allowing traders to adjust the settings of the various technical indicators to fit their individual trading styles.
Vidya Strategy
VIDIYA smooths out market noise and more clearly demonstrates market patterns than any other moving average indicator. By averaging the price values of the periods over which it is calculated, the indicator achieves the desired results by filtering out market volatility (noise). The average prices are given some additional value (weight) during the process, just as it is done when weighted indicators like the EMA, LWMA, and SMMA are calculated. However, the VIDIYA indicator gives each period’s price a weighting increment that is adjusted for the volatility of the present market.
The single calculation parameter for the VIDIYA indicator is the number of periods. The field allows you to choose how many times the indicator will be calculated over. The standard setting is 9. The faster the indicator responds to changes in market price, the lower the number, the less market noise it filters. As a result, it tracks shorter-term market changes and exhibits less lagging because its line stays more closely aligned with the price bars.
The indicator responds to price fluctuations more slowly and filters more market noise as the number increases. Its line follows longer-term market patterns and produces more trailing behind market prices because it is farther from the price bars of the market. The value of the Number of periods parameter is determined by the trader’s trading objectives, techniques, and strategies. These numbers are frequently used: 7, 14, 26, and 52.
Buy Signal
- The price remains higher than the VIDYA average
- The VIDYA curve crosses above the 50 SMA level
- SL below 50 SMA
- Take profit after the indicator demonstrates a bearish crossover
Sell Signal
- The price drops below the VIDYA average
- The VIDYA line moves below the 50 SMA
- SL above 50 SMA
- Exit short when the indicator plots a bullish crossover
Vidya Indicator Pros & Cons
A trader who uses the VIDYA indicator obtains a clear view of market behavior and receives fewer false signals. As a result, trading decisions can be made with less error.
The VIDIYA indicator indicates the market trend that has already emerged and does not predict future trends because it calculates using past data. A trader may only make informed trading decisions if they assume that the recent trend will continue to develop for some time in the future in the same direction.
Pros
- Provides a comprehensive overview of market conditions.
- Easy to use and customizable.
- Suitable for both short-term and long-term trade holding.
Cons
- May generate false signals in choppy or sideways markets.
- May produce late signals in fast-moving markets.
- May be prone to human error in interpretation.
The Vidya Indicator can be a useful tool for traders looking to develop their own trading systems. By understanding how the indicator works and how it generates buy and sell signals, traders can incorporate the Vidya Indicator into their own strategies and use it to identify potential entry and exit points in the market.
Conclusion
The Vidya Indicator is a trend-following strategy that utilizes multiple technical indicators to provide traders with a comprehensive understanding of market conditions. By analyzing the charts, the Vidya Indicator generates buy and sell signals based on the strength of a trend and direction.
While it has its advantages and disadvantages, the Vidya Indicator can be a useful tool for traders who want to develop their own trading systems and make informed decisions about when to enter and exit positions. Its adjustable nature and compatibility with any time frame make it suitable for various trading styles.
However, it is essential for traders to be aware of the potential for false signals in choppy or sideways markets, as well as the risk of late signals in fast-moving markets. It is also crucial to carefully interpret the signals generated by the Vidya Indicator to avoid potential human error.
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