A moving average length that was appropriate last week might be inappropriate next week as market conditions change. One potential solution to this problem is to use a moving average that adjusts to market volatility by lengthening when the market is moving sideways and trading in a choppy fashion (making it less responsive) and shortening when the market is trending (making it more responsive).

In his book Smarter Trading (McGraw–Hill, 1995), Perry Kaufman detailed a method for calculating an adaptive moving average that fit this role. To see how it works, the following examples compare it to a simple moving average (SMA). First, two SMAs with different look–back periods will be compared to highlight the attributes of each. In this case, price crossing the moving average is not important; rather, it is the direction of the moving average that identifies the trend.