Fractal Adaptive Moving Average (FRAMA) – What It Is & How to Trade It

Fractal Adaptive Moving Average (FRAMA) – What It Is & How to Trade It

What is the Fractal Adaptive Moving Average (FRAMA)?

The Fractal Adaptive Moving Average (FRAMA) is a trend-following indicator developed by John Ehlers that adjusts its smoothing factor based on market fractal geometry. Unlike traditional moving averages that apply a fixed smoothing period, FRAMA becomes more responsive in trending markets and less reactive in ranging markets, filtering out noise and reducing lag.

FRAMA is calculated using a fractal dimension-based approach:

1. Compute fractal dimension (D) using price changes over different time frames.
2. Adjust the smoothing factor dynamically based on D.
3. Apply an adaptive exponential smoothing formula.

Key Features of FRAMA

• Adapts dynamically to market conditions.
• More responsive in strong trends while filtering noise in ranging markets.
• Designed to capture fractal nature of price movements.

How to Use FRAMA in Forex Trading

1. Trend Identification Strategy

FRAMA helps traders identify trend direction with minimal lag:

• Bullish Trend: Price is above FRAMA, and FRAMA is sloping upward.
• Bearish Trend: Price is below FRAMA, and FRAMA is sloping downward.

Recommended FRAMA Settings:

• Short-term traders: 10-period FRAMA for quick trend signals.
• Swing traders: 50-period FRAMA for medium-term trend tracking.
• Long-term traders: 100-period FRAMA for identifying major trends.

2. FRAMA Crossover Strategy

Using two FRAMA lines with different periods generates trade signals:

• Buy Signal: When a short-term FRAMA (e.g., 10 FRAMA) crosses above a long-term FRAMA (e.g., 50 FRAMA).
• Sell Signal: When a short-term FRAMA crosses below a long-term FRAMA.

Best FRAMA Combinations:

• 10 FRAMA & 50 FRAMA: Short-term trading.
• 20 FRAMA & 50 FRAMA: Swing trading.
• 50 FRAMA & 200 FRAMA: Long-term trend analysis.

3. FRAMA with RSI Strategy

Pairing FRAMA with the Relative Strength Index (RSI) improves trade confirmation:

• Buy when: FRAMA indicates an uptrend & RSI is below 30 (oversold).
• Sell when: FRAMA indicates a downtrend & RSI is above 70 (overbought).

Pros and Cons of Using FRAMA

✅ Pros:

• Adjusts dynamically to market trends.
• Reduces lag while filtering out false signals.
• Works well in both trending and ranging markets.

❌ Cons:

• More complex than SMA and EMA.
• Requires fine-tuning for different currency pairs.

Final Thoughts

The Fractal Adaptive Moving Average (FRAMA) is a powerful, adaptive moving average that adjusts to different market conditions. By using fractal geometry, it helps traders capture trends with higher accuracy while filtering out noise.