The Fractal Adaptive Moving Average (FRAMA) is a cutting-edge technical indicator developed by John Ehlers. It’s built on the framework of the Exponential Moving Average (EMA), but with a twist! The smoothing factor is calculated based on the current fractal dimension of the price series, which allows it to keep pace with strong trends while slowing down during price consolidations.
Now, when it comes to using the Fractal Adaptive Moving Average for calculating the MACD, things can get a bit tricky without some additional steps. To make the Fractal Adaptive MACD behave more like the traditional MACD indicators we’re used to, we need to incorporate some smoothing.
Without this smoothing, the signals can be a bit too choppy, resulting in what we call a “nervous” indicator. This is mainly due to its adaptive nature, which reacts quickly when we might actually prefer a bit of lag—a crucial aspect of the MACD's convergence/divergence functionality. To address this, we can use a Super Smoother for better results. While there are other smoothing options available, the Super Smoother strikes a good balance, providing a smoother output with minimal lag.
Interestingly, the signal line in this indicator is also a FRAMA, making it an “all FRAMA MACD” indicator. This unique feature can offer traders a fresh perspective on trend analysis and signal generation.
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