Theory:
I stumbled upon a formula on a trading forum that refers to this calculation as "RMA." To be honest, I'm not entirely sure where the term "RMA" originates from, but I decided to give it a shot. The original formula looks like this:
rma = sma(price, period * 3) + sma(price, period * 2) - sma(price, period)
The results made sense, but there was one issue: the formula adds a bit too much lag. So, with a slight tweak, we can modify the formula to:
rma = sma(price, period * 3) - sma(price, period * 2) + sma(price, period)
This adjustment gives us a much better fit, and surprisingly, it produces an average that reacts faster than any of the four basic averages using the same period. Voila! We now have our very own MetaTrader RMA indicator.
Usage:
You can use this indicator just like any other moving average in your trading strategy.
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