FRAMA Indicator for MT4

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FRAMA Indicator for MT4

Introduction to the FRAMA Indicator

FRAMA, which stands for Fractal Adaptive Moving Average, is a moving average method developed by John Ehlers. It is a modified moving average which adapts with the most current price movements allowing it to follow price when momentum develops and remain flat when the market is flat.

What is the FRAMA Indicator?

The FRAMA Indicator is a trend following technical indicator which is a modified moving average type of indicator. It plots a moving average line which places more emphasis on recent price changes making it characteristically responsive to price movements with strong momentum. The moving average line it plots tend to follow price action very closely.

FRAMA Indicator for MT4

How the FRAMA Indicator Works?

The FRAMA Indicator uses a formula which places more on the current price while incorporating an exponential smoothing factor within its formula. This creates a moving average line which moves with price action when the market is gaining momentum and remains flat if price is ranging.

Below is the formula for the FRAMA line.

FRAMA = Current Factor of Exponential Smoothing x Current Price + (1 – Current Factor of Exponential Smoothing) x Previous Value of FRAMA

How to use the FRAMA Indicator for MT4

The FRAMA Indicator has a couple of options which traders can use to modify its sensitivity within its indicator settings.

The “PeriodFRAMA” variable refers to the number of bars the formula uses to compute for the FRAMA line.

“Price Type” refers to the price point on a bar which would be used as the source of the price data for the formula. This is preset to be the close of the bar.

How the FRAMA Indicator Works

The FRAMA line can be used similar to most moving average lines are used.

It can be used to identify momentum or trend direction based on the slope of the FRAMA line or where price action generally is in relation to the line.

It can also be used as a component in a moving average crossover trade setup while being paired with a slower moving average line.

It can also be used as a dynamic area of support or resistance where price may pullback before reverting back to the direction of the trend.

The examples below pairs it with a 50 SMA line and uses the FRAMA line as a dynamic area of support or resistance.

Buy Trade Setup

When to Enter?

The FRAMA line should be above the 50 SMA line while the market trends up. Wait for price to pullback towards the area of the FRAMA line. Open a buy order as soon as a bullish reversal pattern develops. Set the stop loss below the pattern.

When to Exit?

Close the trade as soon as price action shows signs of a bearish reversal.

How to use the FRAMA Indicator for MT4 - Buy Trade

Sell Trade Setup

When to Enter?

The FRAMA line should be below the 50 SMA line while the market trends down. Wait for price to pullback towards the area of the FRAMA line. Open a sell order as soon as a bearish reversal pattern develops. Set the stop loss above the pattern.

When to Exit?

Close the trade as soon as price action shows signs of a bullish reversal.

How to use the FRAMA Indicator for MT4 - Sell Trade

Conclusion

The FRAMA Indicator can be a useful variation of the moving average line which traders can use. It is responsive yet remains flat during flat markets. While the idea behind this moving average line seems to be promising, it is still best to practice using this indicator before trading it on a live account.

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FRAMA Indicator for MT4

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