Modified Moving Average

What

MMA (The Modified Moving Average) is an algebraic tool which makes averages more amenable to price shifts. This average comprises a sloping factor to help it overtake with the growing or declining value of the trading price of the security. Altered shifting averages resemble simple moving averages. The first point of the modified moving average is calculated precisely as the first point of the simple moving average is calculated. However, all following points are measured by adding the new price and afterwards subtracting from the resulting sum the last average. MMA is the difference, the new point on the scheme.

How

The formula for calculating the MMA is the same as the formula of the EMA:

MMA[n] = A1[n]*Exp_Percent + MMA[n-1]*(1 - Exp_Percent)

The two functions are equivalent, but for different values of the period parameter. For example a 14-day MMA is the same as 27 day EMA.

When

MMA can be used with the same theory as all other moving averages, that is levels are interpreted as support in a rising market, or resistance in a falling market. Traders can buy when the market price breaks up through the moving average and sell when the market price breaks down through the moving average. The difference between the SMA and MMA can be viewed below. The MEMA is coloured blue and the EMA is coloured red.