Vidya – Variable Index Dynamic Average was created by Tushar S. Chande. It is a type of Moving average, that adjusts its length according to the market volatility. The higher the volatility is, the higher importance is given to the actual prices and vice versa.
As the volatility rises, Vidya becomes more sensitive and adapts faster to the price changes. As the volatility decreases, Vidya slows down.
Vidya calculation:
- Determine the time periods for short-term and long-term standard deviation calculation (usually 9 and 30-days period)
- Calculate the Alpha factor as follows: α = 0.2 x ((StDev Close 9) / (StDev Close 30))
- Vidya = α x Close + (1 – α) x Vidya n-1
StDev = Standard Deviation
The indicator use for trading is similar to other moving averages.
Note: The main advantage of Vidya is that it adapts to the actual market volatility. So it becomes one of a few indicators that take into consideration this aspect of market. A couple of years later Tushar S. Chande adjusted Vidya in such a way that it implies also his CMO – Chande Momentum Oscillator as a part of its construction.
If you are interested in a deeper study of this technical indicator and prefer ready to serve solutions, this section may be of interest to you. There you can find all the available indicators in Excel file for download.