Description

• Also known as Variable Moving Average
• VIDYA is the short form of Variable Index DYanamic Average. It was developed by Tushar Chande and first presented in 1992 in his article in the journal Technical Analysis of Stocks and Commodities
• VIDYA is a combination of Adaptive Moving Average and Exponential Moving Average. It gives weight to recent data based on volatility of the data series, more the volatility more the weight to recent data
• VIDYA effectively compensates for trading (frequent price fluctuations in a short period) and trending (a consistent direction of price over a longer period) times. During trading times short-term averages give many false signals, while long-term averages give late signals in trending times. With the smoothing constant as well as volatility index in its formula VIDYA adjusts its sensitivity in trading as well as trending time

Interpretation

• Similar to other averages, VIDYA is also used for confirming trends and overall price direction
• The price line moving above the VIDYA indicates an uptrend suitable for Buy trades
• The price line moving below the VIDYA indicates an downtrend suitable for Sell trades

Default Parameters Used/Inputs

• Data Line- Close line, High line, Open line, Low line or others
• CMO Bars- For calculating Volatility Index, which is the absolute value of CMO (Chande Momentum Oscillator) divided by 100. 9 bars is taken as default value
• VIDYA bars- Used to determine the Scaling Multiplier, which is calculated by the formula [2/(n+1)] where n is VIDYA bars

Returns/Output

Chande VIDYA variable graph line weighted on recent data according to volatility of the security

Formula

VIDYA = [(SM*VI)*Close] +
[(1 – (SM*VR)]*VIDYA(previous)]
Where SM = Scaling Multiplier
[2/(1 + n)];here n is VIDYA bars
VI = Volatility Index given by
[CMO value/100]
Note- VIDYA for first bar on chart is taken as Close