Variable Index Dynamic Average (VIDYA)

Parameters: period = 14 (5–50) • band_percent = 2 (0.5–5)

Overview

The Variable Index Dynamic Average (VIDYA) represents a significant advancement in moving average technology, first introduced by Tushar Chande in Technical Analysis of Stocks & Commodities magazine in March 1992. Unlike traditional moving averages that use fixed smoothing factors, VIDYA employs the Chande Momentum Oscillator (CMO) to measure market volatility and adjust its responsiveness accordingly. This adaptive behavior allows the indicator to speed up during strong trends and slow down during sideways markets, reducing false signals while maintaining sensitivity to genuine price movements.

The calculation uses the formula VIDYA = Price × F × |CMO| + Previous VIDYA × (1 - F × |CMO|), where F is the EMA smoothing factor and CMO measures the ratio of up moves to down moves. Originally using standard deviation for volatility measurement, Chande modified the indicator in 1994 to use CMO, which provides better responsiveness to directional price changes. The result is a moving average that automatically adjusts its effective period based on market conditions, offering superior performance compared to fixed-period moving averages.

Interpretation & Trading Signals

Band Trading Signals:

  • Buy Signal: Price crosses above upper band (VIDYA + N%) from below
  • Sell Signal: Price crosses below lower band (VIDYA - N%) from above
  • Band Width: Typically set at 2-3% above and below VIDYA line
  • Sideways Markets: Avoid trading when bands are horizontal

Trend Identification:

  • Uptrend: Price consistently above VIDYA with rising slope
  • Downtrend: Price consistently below VIDYA with falling slope
  • Trend Strength: Steeper VIDYA slope indicates stronger momentum
  • Volatility Response: VIDYA speeds up in trending markets

Crossover Strategies:

  • Price Cross: VIDYA crossing price signals potential trend change
  • Dual VIDYA: Fast VIDYA crossing slow VIDYA for trend confirmation
  • MA Combination: VIDYA crossing SMA provides strong signals
  • Exit Strategy: VIDYA falling below support MA suggests exit

Example Usage

Code examples will be available once the Rust implementation is complete.

Performance Analysis

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