This indicator comprises of two components, the MAMA (BLUE line) and FAMA (RED line). The starting point of MAMA is the conventional EMA. The concept of MAMA is to relate the phase rate of change of the prices of the EMA. The FAMA (Following Moving Average) is calculated by applying the MAMA to the MAMA itself. By using an alpha in FAMA that is half the value of the alpha in MAMA, the FAMA steps in synchronization with MAMA. This indicator is ideal in reducing whipsaws.
Buy: Buy trade will be triggered when indicator line turns BLUE. Exit BUY trade when indicator line turns RED.
Sell: Sell trade will be triggered when indicator line turns RED. Exit SELL trade when indicator line turns BLUE.
The second value displayed on chart is what John Ehlers calls "a Following Adaptive Moving Average (FAMA)", and this indicator uses the combined values of MAMA and FAMA to assess the trend of the market.
The MESA Adaptive Moving Average (MAMA) adapts to price movement in an entirely new and unique way. The advantage of this method of adaptation is that it features a fast attack average and a slow decay average so that composite average rapidly ratchets behind price changes and holds the average value until the next ratchet occurs.
If the MAMA is applied to the first MAMA line to produce a Following Adaptive Moving Average (FAMA). By using an alpha in FAMA that is half the value of the alpha in MAMA, the FAMA has steps in time synchronization with MAMA, but the vertical movement is not as great. As a result, MAMA and FAMA do not cross unless there has been a major change in market direction. This suggests an adaptive moving average crossover system that is virtually free of whipsaw trades.
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