Moving average indicators have been termed as an entry-level tool that has limited capabilities. However, when the indicators are used appropriately, they are much more advanced and more useful than they may seem to many. One of the indicators that can add to your arsenal in analyzing technical analysis tools is the Arnaud Legoux moving average (ALMA). ALMA is quite a new entry in the industry which made its first appearance in 2019. The indicator can be used for all markets in all timeframes.(Click this link to access an economic calendar for your trading strategies)
What is The Arnaud Legoux moving average (ALMA) Indicator?
Traders use the Arnaud Legoux moving average (ALMA) indicator to enhance the market’s trade by eliminating minor price fluctuations. The indicator uses zero-phase digital filtering to lessen the noise in the market. Arnaud Legoux moving average (ALMA) indicator also creates reliable signals to the traders, then signals from other conventional moving averages. The indicator uses the moving average twice — from the right and from the left to enhance a trend. When the process of the ALMA is completed, the price tag gets reduced.
Features of the Arnaud Legoux moving average (ALMA) Indicator
• Window. This represents the nine periods which is the period by default. Using the window, traders can adjust the periods depending on their trading rules.
• Offset. This is the 0.85 default Gaussian applied to the combo. When offset is set at 1, it is fully compatible with the current price as it is in the exponential price moving average. When it is zero, it seems like the simple moving average.
• Stigma. This refers to the standard deviation that is applied to the combo line. It has values set to 6 at default which makes the combo line sharper.
Interpretation of the Arnaud Legoux moving average indicator
The indicator is crucial to traders when identifying the trend direction, reversal breakouts, support level, and resistance. As a trend following indicator, it trends upward when markets have an upward trend and on the other side, it trends downward when a downward market is detected.
In cases where price and ALMA are having an upward trajectory with prices above ALMA, it’s an indication that there is an upcoming breakout or reversal, which results in the price and ALMA moving downwards. When both price and ALMA are on a downward movement, and the price moves below the ALMA, it is a suggestion that there is an upcoming reversal resulting in both having a movement.
Trading with the ALMA indicator
The indicator is used in various ways by traders. For example, when the market price remains above AlMA when there is a strong uptrend. On the same note, the price of the market remains below ALMA when a strong downtrend occurs. Traders trade, basing their decisions on the retracements and breakouts, which is a possibility with the Arnaud Legoux moving average.
Traders can use stochastic in their trading system when traders are trading based on the overbought and oversold market conditions. It is also important to note that experts suggest that when the Arnaud Legoux moving average indicator is used with other technical analysis tools, it increases the odds and maximizes profits.
Comparison to other to conventional moving averages
The Arnaud Legoux moving average is more superior compared to other moving averages. The main reason is that the conventional moving averages use the exponential, which closely makes alignment with the prices. Its movements are swift and hence prone to false signals. Also, the simple moving averages move very slow and lead to the lateness in giving the signal.
Arnaud Legoux moving average indicator is not associated with any of these problems. The indicator makes a combo line that has two moving averages moving in two directions. Later, the combo signal is adjusted with a Gaussian that changes the combo line into a standard deviation together with the current price.
Subscribe to tradingview.com for free to get great ideas from other traders.