The Arnaud Legoux moving average (ALMA) is a new kind of moving average that was developed by Arnaud Legoux and Dimitrios Kouzis Loukas back in 2009. The ALMA intends to resolve the two major weaknesses of moving averages, namely responsiveness, and smoothness.
The result of using the ALMA on your charts is that it can eliminate price lag better than using an SMA or even EMA. Below you can see an example of the indicator used on BTC/USD.
For the rest of this article we’ll explore how you can make the most out of the Arnaud Legoux moving average.
How to use the Arnaud Legoux Moving Average (ALMA)
The easiest method of using the ALMA is to apply it as a trend-following indicator, similar to a simple moving average. The benefit of the ALMA is that you may get more responsive signals as the indicator tightly follows the price action.
The default settings for the ALMA is below:
- Window size: 60
- Offset: 0.85
- Sigma: 6
The above settings for the ALMA can be configured on Trading View or through your trading software.
Another option is to use two ALMAs to generate buy and sell signals. This can be accomplished by adjusting the window size or lookback period for the same index or security. Signals then can be made through MA crossovers and divergences.
The most effective combination, however, would be to use the ALMA in conjunction with a momentum indicator such as the MACD, RSI or stochastics. This indicator combination would then give you the best of both worlds: trend-following momentum along with a lagging moving average.
Divergences between the ALMA and the momentum indicator could then be seen. For instance, if price is making a higher high while momentum is making a lower high, this could foreshadow a potential reversal to the downside.