## Chandes Variable Index Dynamic Average

### This lesson will cover the following

- Definition
- Calculation
- Interpretation

Another indicator developed by Tushar Chande, the Variable Index Dynamic Average is a method of calculating an Exponential Moving Average which however does not use a static period of averaging, rather automatically alters its speed in accordance to shifts in market volatility.

This oscillator uses the CMO value (Chandes Momentum Oscillator) as a gauge of volatility. It measures the ratio between the sum of positive and negative increments for a certain period. The CMO value is then used in the calculation of the Variable Index Dynamic Average. Here is how the math looks like.

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The standard Exponential Moving Average is calculated as follows:

EMA(i) = Price(i) * F + EMA(i-1)*(1-F), where:

– Price(i) is the current price

– F is the smoothing factor and is equal to: 2/(Period_EMA+1), where Period_EMA is the EMA averaging period

– EMA(i-1) is the EMAs previous value.

The value of Chandes Momentum Oscillator is calculated using the following formula:

CMO(i) = [UpSum(i) – DnSum(i)] / [UpSum(i) + DnSum(i)], where:

– UpSum(i) is the current sum of positive price increments for the period

– DnSum(i) is the current sum of negative price increments for the period.

The VIDYA is calculated as follows:

VIDYA(i) = Price(i) * F * ABS[CMO(i)] + VIDYA(i-1) * {1 – F* ABS[CMO(i)]}, where

– ABS[CMO(i)] is the absolute current value of the Chande Momentum Oscillator

– VIDYA(i-1) is the VIDYAs previous value.

Chandes Variable Index Dynamic Average is used as a replacement of traditional moving averages. Also, its boundaries, which are placed above and below the VIDYA at a certain percentage distance, create a channel which is traded in a similar way to Bollinger Bands. The following screenshot illustrates the VIDYA in a trading platform.

Chart source: VT Trader