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The Variable Index Dynamic Average (VIDYA) was developed by trader and technical analyst Tushar Chande. The objective is to improve the exponential moving average (EMA). Tushar Chande presented his VIDYA for the first time in the magazine Technical Analysis of Stocks & Commodities.
The VIDYA is also a moving average indicator. It is an adaptive weighted moving average. The VIDYA has a unique way of calculating the average price. The indicator uses the volatility to dynamically change the periods over which the average is calculated. The higher the volatility, the shorter the averaging period, the faster the VIDYA indicates the price changes. The lower the volatility, the longer the averaging period, the slower the VIDYA indicates the price changes.
The VIDYA average can be used as a trend filter or as a trading signal. The indicator can be used alone or in combination with a simple moving average.
This example shows the VIDYA used as a trend filter. The filter colours the background of the chart to indicate the market trend.
This example shows the VIDYA being used as a trading signal. Two trading signals are visible.
This example shows the VIDYA average in combination with a simple moving average. Traders use the cross of the two lines as a signal. The red or green colours between the lines can be used as the trend filter.
Given that the VIDYA is a moving average concept, many other combinations are possible.