|Parameter Defaults:||MEMA Period||10 controls the measurement period for the Average|
The Modified Exponential Moving Average is very similar to the standard exponential moving average and differs only in the manner in which the smoothing factor is calculated. The smoothing factor is the element in the formula that converts the number of bars to be considered into a decimal that represents that length. In a standard exponential moving average the formula is as follows:
EMA = EMA t-1 + SF * (Pricet – EMA t-1)
Where: SF = 2 / (1 + Length of Average)
The formula for the modified version is essentially the same, but the smoothing factor is calculated as follows:
SF = 1 / Length of Average
The effect of the different smoothing factor basically slows the average but there will be equivalents. For example, let’s take the case of a 19 period standard moving average. The smoothing factor will be:
SF(standard) = 2 / (1 + 19) = 0.10000
We can calculate the modified smoothing factor by substituting the result of the standard smoothing factor into the modified equation thus:
0.1000 = 1 / Modified Length
=> Modified Length = 1 / 0.1000 = 10
Thus a 19 period standard exponential moving average will be the same as a 10 period modified exponential moving average.
The chart above shows a 10 period standard exponential moving average in yellow, and a 10 period modified moving average in green. Slightly hard to see, but a 19 period standard moving average has also been added but is identical to the 10 period modified moving average.